Digital Media Strategies

We cover all of the major media sectors, including advertising, TV and video, music, games and social media.

September 8, 2014 13:54 lkawasaki

Compared to sell-thru and rental, subscription is a relatively new business model in the home entertainment industry. But this is not keeping it from dominating consumer home entertainment spending. In 2013, consumer spending accounted for 47% of OTT video revenue. Of this, SVOD made up 47% of the consumer spending category. By 2018, consumer spending will account for 54% of OTT video revenue, of which SVOD will comprise of 74% of the consumer spending category.

While there are many SVOD services across Europe, it is important to note that Strategy Analytics only estimates pure-play OTT SVOD players. In other words, we only account for stand-alone OTT video services; we do not include SVOD services that are value-added to a Pay TV service.

For a detailed breakdown of Western Europe OTT Video by country and segment please see the full 2014 European OTT Video Forecast and Market Overview Report (European OTT Video Revenue to Reach $9.45 Billion by Year-End 2018).


September 2, 2014 15:12 MGoodman

Driven predominantly by the growth of Netflix, which accounted for 68% of paid SVOD subscriptions, there were 46.3 million paid SVOD subscriptions at year-end 2013. This translates to .43 paid SVOD subscriptions per broadband subscription. Combined, Netflix and Hulu accounted for 79% of paid SVOD subscribers in 2013.

Please note we are counting paid subscriptions to services such as Netflix, Hulu, YouTube, and not households as households can subscribe to more than one service. By year-end 2014 paid SVOD subscriptions will grow to 55.3 million and by 2018 will reach to 73.4 million, a 2013-18 CAGR of 8.0%. This translates to .61 paid SVOD subscriptions per broadband subscription in 2018.

It should also be noted that we do not include Amazon subscribers in this count as Amazon bundles its Prime Instant Video service into its Prime membership at no additional cost, thereby inflating its video subscriber count as not all Prime members make use of this service.

For a detailed breakdown of OTT Video by country and segment please see the full 2014 North American OTT Video Forecast and Market Overview Report (North American OTT Revenues to Reach $24 Billion by 2018).

North American SVOD Subscriber Forecast

August 19, 2014 15:15 dmercer

Would Sky or any other “legacy” pay TV provider ever offer all of its video services over the open internet? And I’m not referring to “TV Everywhere” services which are only available to “real” pay TV customers, but pure OTT. There are all kinds of arguments for and against, and the general consensus is that it will be quite some time, if ever, before this is practical if only from a technical perspective.

But Sky seems to be pushing ever closer to offering its own fully fledged OTT pay TV service with its new Now TV pricing. As we noted at Now TV’s launch sports and movies were always going to provide the greatest appeal for Now TV customers. Movies have been in place and are a compelling proposition at £8.99/month for Sky’s entire movie VOD library. Sports have always been more problematic, not least for technical issues as we identified at the service’s first major rollout. Since then Sky has persisted with its expensive £9.99 Day Pass sports option and has likely sold very few of those products.

Until last week, that is, when it launched two new sports options: the Day Pass is reduced to £6.99 and a new 7-day pass is introduced at £10.99. By some measures this could be calculated as an 84% price reduction (previously the cost of watching Sky Sports on Now TV for a week was £69.93, though I suspect there had been zero customers).

I have no doubt this new price point will prove a great deal more compelling, allowing football fans typically to watch three live Premier League games and one from the Championship, as well as a number of games from European leagues.

Sky’s stated aim with Now TV is to target non-pay TV customers who currently use free services from Freeview and Freesat. It claims that 80% of Now TV customers have never previously taken a pay TV package. Our own ConsumerMetrix survey only found a small sample (28)  of NowTV users in Q4 2013 so while the findings should be treated with caution we found that more than half were subscribing to a pay TV service. Nevertheless, Now TV clearly has the confidence to experiment further with price points which put Now TV ever closer to the Sky TV equivalent.

Direct comparisons are impossible: there are only 12 entertainment channels offered in Now TV’s package, compared to more than 35 in the basic Sky package. But in terms of content the movies and sports comparisons are very close. The two major differences are Now TV’s lack of recording (DVR) and HD. Sky’s cheapest package offering basic + movies + sports currently retails at £51.50/m standard. A Now TV customer can now pay £61.60/m for Entertainment, Movies and Sports (based on pro-rated sports 7-day ticket).

Now TV of course offers a great deal more flexibility – no up front contracts and the freedom to dip in and out of different content packages without penalty. Some sports fans may find that they can avoid buying one or two weekly packages a month if they happen not to watch any events that week, in which case the cost will fall below the equivalent Sky TV package.

BSkyB will continue to promote its Sky set-top box service as the premium offer (through superior content choice, DVR, HD, 3D, Sky Go etc) and will be very careful to watch for any sign of defections of its own customers to Now TV. I suspect these will still be very limited in spite of the new Now TV pricing – most Sky customers are happy with their service, if resentful of high prices. And technical issues continue to dog Now TV as evidenced by regular complaints to customer forums – increased demand for live OTT sports streaming will put further pressure on the Now TV systems.

But Now TV has evolved rapidly, as we expected, into a fully fledged pay TV service, even if Sky would prefer to describe it as “Pay TV Lite”. BSkyB’s challenge now is to make sure its main service continue to just the prices demanded by “Sky TV Heavy”.

David Mercer

August 12, 2014 18:21 MGoodman

Most retailers prefer not to get in to public spats with their suppliers but this clearly this is not the case with Amazon who in a dispute with Disney has blocked pre-orders of certain upcoming releases, including “Muppets Most Wanted," "Maleficent," and "Guardians of the Galaxy." Disc options for "Captain America: The Winter Soldier" and “Million Dollar Arm” are not listed at all, while Amazon Instant Video pre-order options remain. In comparison, these titles are available for pre-order at other online retail outlets such as and

Disrupting existing business models is nothing new at Amazon. In fact, it is a core principle upon which their business is built. Since launching in 1995, Amazon has grown to become the 5th largest retailer in the U.S. and 10th globally with $74.45 billion in retail sales worldwide in 2013. In all likelihood Amazon will join an exclusive club of four retailers with $100+ billion in retail sales, in the not too distant future.

When comparing online sales Amazon dominates even more completely. In the U.S. in 2013, Amazon had $67.9 billion in e-commerce sales, totaling more than the next nine largest retailers online sales combined, according to data from Internet Retailer. Apple had the 2nd most e-commerce sales with $18.3 billion, followed by Staples ($10.4 billion), Walmart ($10.0 billion), and Sears ($4.9 billion).

Now Amazon is setting its sight on challenging the business models that have exist between content owners (e.g., book publishers, movie studios) and retailers for decades.

Amazon’s dispute with Disney is not its first with a content provider.

Amazon is locked in a several month long dispute with publishing house Hachette over eBook prices which has resulted in shipping delays for some Hachette titles and pre-order buttons being stripped away for others. This dispute is on-going.

In a dispute over pricing in mid-May, Amazon refused pre-orders on upcoming Warner Bros. home videos including "The Lego Movie," "300: Rise of an Empire," "Winter's Tale" and "Transcendence." Amazon and Warner Bros. came to a mutually agreeable solution after a few weeks.

In the best of times the retail business is challenging, retailers do not want to discourage sales or drive consumer to competitors. Clearly, Amazon feels secure enough in its position in the market to take this risk; however, this is an opportunity for competitors offering pre-orders of these movies; particularly those with large home video business such as Walmart, Target, and Best Buy to highlight that they are doing so and gain back a little ground lost to Amazon.

Recapturing market share from Amazon is particularly relevant in the U.S. home video category where physical sell-thru has lost nearly 50% of its value over the past decade and electronic sell-thru is proving insufficient to offset this decline. Strategy Analytics estimates that electronic sell-thru accounted for $1.1 billion in revenue in 2013.

Amazon rarely gives competitors such a clear shot to distinguish themselves, when they do it is imperative that they take advantage because it is not going to last for long.

August 11, 2014 18:49 MGoodman

Vivendi is in the middle of a major overhaul as it seeks to become more focused both operationally and geographically. Until recently, Vivendi’s strategic focus could be best described as unclear or disjointed. Did Vivendi want to be a media company (Canal+ Group, Universal Music Group (UMG), and Activision Blizzard) or a telecommunications company (Société Française de Radiotéléphone (SFR), Maroc Telecom, and Global Village Telecom (GVT))?

Recent moves, however, have had the dual benefit of paying off Vivendi’s debt, which stood at €13.4 billion as recently as year-end 2012, while simultaneously creating a more focused company.

·        Spun out Activision Blizzard as an independently owned public company in September 2013 generating approximately $8.2 billion in cash while still retaining a 12% ownership stake, down from 63%.

·        Sold its 53% stake in Maroc Telecom, the leading mobile, landline phone and Internet provider in Morocco to Etisalat in November 2013 for €4.2 billion.

·        Pending regulatory approval, sold its stake in SFR, one of France's four mobile telecommunication companies as well as one of France’s largest Internet providers, to Numericable in April 2014 for €17.0 billion.

At the conclusion of these moves Vivendi was left with pay-TV programmer - Canal+ Group, the #1 record label - Universal Music Group (UMG), and Brazilian telecommunications company - GVT.  According to Vivendi, once the SFR transaction closes and after paying off outstanding debt and paying shareholder dividends the company will have approximately €2.0 billion in cash on hand.

Seeking to further streamline itself as a media company and focusing more closely on Europe, Vivendi is seeking to swap GVT for a share of Telecom Italia. Simultaneously, Vivendi's pay-TV arm, Canal+ is reportedly seeking a majority stake in Italian programmer, Mediaset Premium.

Strengthening its content business by acquiring Mediaset Premium makes a tremendous amount of sense for Vivendi. A programmer like Mediaset Premium aligns well with Canal+, whereas Vivendi has struggled to find synergies between Canal+ and UMG, let alone its telecommunications properties. 

As noted by my colleague Jason Blackwell, “service providers are seeking out valuable content, not running away from it.” Seeking to improve its content portfolio will pay dividends for Vivendi as service providers will go out of their way to get the best content but will shun content that doesn’t add value.

In addition, acquiring Mediaset Premium allows Vivendi to gain some geographic diversity while still retaining a core European focus. According to Vivendi, France currently accounts for about 60% of Canal+ business. Given France’s high unemployment, uncertain economy, and the impending launch of Netflix in France (and other European countries) becoming less Franco-centric is a sound strategy.

Divesting itself of GVT makes sense in light of Vivendi’s focus on becoming more of a media & entertainment company. GVT neither strengthens Vivendi’s content portfolio or geographic focus. Acquiring a stake in Telecom Italia, however, does not make much sense either strategically or tactically, unless Vivendi receives a significant cash payment as part of the equity swap that Vivendi can then use for additional acquisitions. If Vivendi is trying to influence Telecom Italia’s decisions to carry its programming they would be better off continuing to make themselves indispensable by improving their content portfolio.

July 22, 2014 14:04 MGoodman

Retail giant Walmart recently announced it had hired Jeremy Verba to serve as vice president and general manager of VUDU, Walmart’s on-demand video service which it acquired in March 2010 for a reported $100 million.

Verba has an impressive resume having served as president and founder of E! Online, as a general manager at Zynga and at AOL, and as CEO of dating web site eHarmony. Verba has his work cut out for him trying to make VUDU a success as electronic sell-thru (EST) is proving far less popular that physical sell-thru did. According to Strategy Analytics’ Q4 2013 ConsumerMetrix Survey, only 4% of U.S. Internet users that watched TV shows and/or movies delivered via the internet in the last month watched on VUDU. In comparison, 47% watched on Netflix and 28% watched on Hulu. This has has long-term implications for Walmart as digital distribution is transforming the video business, a key part of Walmart’s business.

Entertainment (which Walmart defines as electronics, toys, cameras and supplies, photo processing services, cellular phones, cellular service plan contracts and prepaid service, movies, music, video games and books) is one of Walmart’s six strategic merchandise units in the US. This segment, however, is in decline, falling from 12% of revenues (approximately $31.7 billion) in FY 2012 to 11% of revenues (approximately $30.7 billion) in FY 2014.

At least some of this decline is attributable to the transformation the video industry is under-going. Physical sell-thru in the U.S. has lost nearly 50% of its value over the past decade and electronic sell-thru is proving insufficient to offset this decline. Strategy Analytics estimates that electronic sell-thru accounted for $1.1 billion in revenue in 2013. A far cry from what the category has lost over the past decade. In comparison, subscription VOD, a service VUDU does not offer, is proving to be consumer’s top choice, accounting for 69% of online video transactional revenue in 2013.

With Comcast’s proposed acquisition of Time Warner Cable, AT&T’s acquisition of DIRECTV and FOX attempting to acquire Warner Bros. Entertainment the video industry is in a period of change. Now might be an opportune time for Mr. Verba to think about expanding the VUDU brand to subscription VOD. Hulu’s owners have considered selling in the past, now might be the time to give them a call. Who know what might happen?

May 2, 2014 13:23 dmercer

I was given some interesting insights into the changing world of TV content discovery during an update with Freesat’s management team, Emma Scott and Matthew Huntington at their London HQ yesterday. I reported on Freesat’s launch of its online DVR service Freetime in October 2012. Since then Freesat has gained insight into how users behave when finding and choosing on-demand video. 25% of on-demand video is selected from the backwards TV guide, 10% from the Showcase recommendations service, and the remaining 65% direct from the online players (iPlayer, 4OD etc.). This pretty much mirrors my own experience. It suggests that users prefer to try what they know, which would typically be the classic online video player, but also that innovations like the backwards guide and Showcase can also have an important impact.

Showcase is a human-curated guide to what’s coming up on broadcast TV as well as currently available on OD services. It’s a nicely presented service, and, as Freesat confirms, the images make the difference – people respond to the sight of a particular actor or scene. From personal experience, when I do occasionally explore the Showcase recommendations I am usually rewarded with one or two shows which I want to know more about, even to the extent of setting the record button.

The importance of Showcase is also demonstrated by the fact that the top ten DVR recordings made by  Freetime users are all driven by Showcase recommendations. For these and other reasons Freesat is about to expand and improve the Showcase offer. The number of recommendations will be increased (as is already the case on the iPad app), they will be categorised into genres, and scrolling will become both vertical and horizontal. (I am also assured an Android version of the app is on the way – it can’t come too soon.)

While Freesat’s original goal was managing a free-to-air satellite platform, strategically it will be positioning itself increasingly as a device-agnostic aggregation and content recommendation service, and Freetime will serve as the basis of this strategy. Freesat was encouraged by retailers and manufacturers to enable its Freetime service on the UK’s other free-to-air platform, Freeview. This led to the recent launch of Freetime-enabled Panasonic smart TVs and similar products from Vestel are expected by the end of the year. Pansonic’s Freetime TVs include either both satellite and DTT tuners or only a DTT tuner. Freetime will therefore become the default smart TV interface for viewers watching DTT Freeview on Panasonic TVs.

My take is that it seems clear that, from Freesat’s perspective, there is a greater expectation from these new products to build a new DTT Freetime audience than to add new Freetime satellite customers. This clearly positions Freetime as a potential alternative to Youview, although it currently lacks the DVR capability, something which Freesat is working on with manufacturers, including enabling USB hard disk support. Since the BBC, ITV and other free-to-air players are known to be unhappy that BT and TalkTalk have dominated sales of YouView DVRs (not that they should have been surprised at this outcome), they will be encouraged to know that DTT alternatives are beginning to appear. I suspect that discussions about a Freetime DTT DVR are already well under way.

Freesat itself is excited at the possibility of adding “700,000” new Panasonic connected TVs to its Freetime user base by the end of 2014. The company has no plans to monetise Showcase at the moment – its recommendations are not paid for –but with a growing Showcase user base it could eventually become an important influence on which TV programmes people are watching in millions of UK homes.

Finally, the arrival of a pay service on Freesat is expected soon. It will be an onlinbe on-demand service, I am told, not a pay TV channel. Freesat makes it clear that it will not be managing the pay relationship – that is entirely in the hands of the content partner.

David Mercer


April 2, 2014 17:23 dmercer

As if there wasn’t enough choice in the expanding OTT TV market, Amazon has joined the fray with its $99 Fire TV digital media adaptor. Pitched as a faster, sleaker unit than its rivals, it puts Amazon squarely up against American internet heavyweight rivals Apple and Google, as well as specialists like Roku, in the race for viewers of tomorrow’s TV screen.

Amazon is certainly not new to the video market. It was a leader in the transition to internet-delivered DVDs and Blu-ray Discs and then in internet-delivered video downloads. Its Amazon Prime Instant Video and Lovefilm services have established the company as a leader in OTT video and, like Netflix, it is now commissioning its own original content. And while users could get Amazon’s services on other connected TV devices, Amazon didn’t have its own solution to the TV problem.

Fire TV solves that problem, as well as bringing games and, later, music to the TV screen. Amazon’s content portfolios and wide market presence will automatically make it a serious player for anyone looking for an alternative source of entertainment on their big screen. But like Apple TV and Chromecast, what Fire TV does not do is offer a serious threat to incumbent pay TV operators like Comcast and Sky, which still have most of the rights to premium live sports and first-run movies which OTT providers cannot offer. OTT TV customers are adding Chromecast, Apple TV and, now, Fire TV, to access additional content sources, including their own personal videos and web-sourced content, on their big screen, as much as to watch new content sources like Netflix.  There is little evidence so far that the so-called cord-cutting phenomenon is having a significant impact on pay TV providers, although they are clearly watching internet rivals closely and making their own plans for OTT. Sky’s Now TV is the best example of one such response and we expect pay TV/OTT partnerships to proliferate over the coming years.

One missing element appears to be social networking: still we have not seen a good example of integrating social networks like Twitter and Facebook into an OTT TV experience. Perhaps we will have to wait for Twitter and Facebook's TV adaptors to see that...

But Amazon appears to have done a good job of differentiating itself in what is already becoming a crowded market. It is right to have addressed the critical big screen user experience question, although we question whether voice control is necessarily the right approach – our research suggests modest customer support for this innovation. It is also right to focus on content discovery, a key challenge for all video providers. Innovations like multi-screen gaming will also help Fire TV to expand its appeal beyond video services.

All in all, a promising debut for a powerful new player in the OTT space and we look forward to the inevitable responses from its major rivals.

David Mercer

January 9, 2014 19:52 ebarton

Day three saw unchanged weather and dire traffic as the show headed past half time and the key messages started to be digested by attendees. Clearly the headline buzz bullet points are:

- 4K, some panels boast 4k resolution in order to use it as a marketing message. Silicon, upscaling quality, framerates and a host of other key factors impacting IQ range from bad to non-existant from these (generally) lower tier, less recognisable manufacturers. 4K content is another discussion entirely. In summary, wake me up when Sky Sports 4K launches.

- wearables, thaazands of'em (apologies to Michael Caine). If it has a chip, make sure you add a strap or some way of sticking it on a person. My colleagues in WMS have made some headway in divinating the key points on the app side of the wearables equation. The quantified self and wellness are another two big themes of this show which rely partly on the wearables story.


1. WWE are Family

WWE, the organisation behind the hugely popular wrestling entertainment franchise, announced an OTT subscription service to enable the audience to access live and on-demand wrestling. Monthly cost is $9.99. US launch is late February 2014 with UK, Australia, Germany, SIngapore and the Nordics to follow by the end of 2015. Device coverage includes desktop, iOS, Android, ps, Kindle, roku, Xbox, major IETV brands.

The content included comprises all twelve live PPV wrestling events annually including Wrestlemania. Other content includes a daily live studio show and a reality show based on retired wrestling legends sharing a house together and the hilarious japes which result. Live programming is augmented by an on-demand library making over 1000 hours of wrestling content available to subs.


Let's get ready to rumble

- WWE has a proven track record in pioneering distribution strategies which have subsequently become the industry standard for sports entertainment and conducts much research into the huge audience which will pay to get ringside. Of 116m TV homes in US over half have a self-confessed WWE (not wrestling, WWE, an important distinction) fan. This fan base loves online video and is twice as likely purchase online viewing than the average American. Device ownership and usage metrics also track well above average and their love of WWE is beyond question.

- WWE already performs well via the OTT channel: a subscription based product is a natural evolution of a maturing strategy. Other US sports rights owners have already leveraged the OTT channel effectively and WWE will hope to replicate if not surpass the success achieved by the NBA, NFL and particularly MLB.

- WWE Network at $9.99 a month substantially undercuts the cost of accessing WWE PPV broadcasts via TV which costs around $675. These aren't directly substitutable products: the main screen experience is still differentiated from the more intimate connectable device based viewing experience: try convincing ten of your college buddies to come round and watch the wrasslin on a tablet with beers and nachos. However the price difference is substantial and will cut into PPV revenues which won't be the best news service providers will get this week. WWE is disintermediating TV distributors by using the Public Internet to reach the audience directly: straight out of the Digital Media Analyst's playbook. Naturally OTT sub revenues don't have to be shared with anyone and presumably enjoy much higher margins than PPV revenues. Also WWE gets to cultivate a deeper relationship with the fan base. Deeper awareness and knowledge of what makes their audience tick will be gleaned from online viewing habits and will enable WWE to sell advertising at higher rates as well as inform future programming development.


Stone Cold Steve Austin

- The headline risk is in whether WWE shrinks the dollar volume dropping to the bottom line by enabling die hard wrestling fans to access PPV content at a 70 per cent discount to TV. Some of this is mitigated by imposing a 6 month minimum subscription period on the OTT product and some more is mitigated by the fact that the experiences are not directly substitutable. It is conceivable that a hardcore fan will subscribe to this AND purchase some of the PPV shows when they want the big screen experience. Additionally this is a long term play for WWE: while unlikely I suspect Vince McMahon would be willing to take a gentle bodyslam in the first year in return for the chokehold of higher margin revenues over the long term.


2. For what we are about to re-Vevo

In the round of Analyst briefings and meetings it is easy to become slightly jaded at the longer term attitudes of some senior execs for whom everything seems focussed on market share, exits, bottom lines, audience metrics and whatever else makes the compensation committee reach for a bigger chequebook. So a chat with Rio Caraeff who founded online music video service Vevo was a reminder that there are still some firms chasing the end of a visionary's rainbow.


Take me down to the Paradise City

- Online music video is a serious business: SA consumer research shows that it is the number one online method for teenagers to access music. It doesn't matter that there is a video playing: the major online video platforms allow the audience to treat them as they would an audio streaming service with playlists, discovery and recommendation tools which would be familiar to any Spotify jockey.

- Service is also free and ad-supported. Vevo has become a kitemark for quality music video online. Before Vevo searching for a popular music video on Youtube would yield thousands of low quality versions. Now Vevo is the key Youtube MCN with dozens of artist channels which usher the audience to the high quality official version. You can still stick a Daft Punk soundtrack on your boring holiday video featuring your insufferable offspring, just don't expect it to nix the Britney Spears cover version in the Youtube search rankings.

- territorial coverage is good and improving: we expect territorial rollout to continue through 2014 to increase markets from 13 to around 20 by year end. Device coverage is already tier one as demonstrated in our Digital Media Distribution Tracker. The commercial model will continue to evolve with some innovative release strategies promised for 2014 which will drive premium CPM rates higher still.

- the macro story is excellent: our OTT and digital advertising forecasts show that Vevo is riding the crest of two substantial growth waves with plenty of runway left for growth: OTT consumption and online video ad spend.


Like a wrecking ball

- working with music rights brings to mind the dentistry lesson from Marathon Man. The main constraint on Vevo's global rollout is negotiating publishing rights in each additional market.

- emerging markets retain the anarchic nature of low quality music videos attracting low to zero dollar CPMs and brands who continue to place a very low value on the online music audience, Vevo still has a substantial evangelical job to do in many parts of the World.


The tale of how Vevo reclaimed the music video experience online, cleaned it up, gave it a stiff polish and as a result substantially improved the value proposition to advertisers is likely to be taught in business schools a few years from now (don't hold that against them). We'll take a closer look at Vevo and online music video in general in the near future as this is a form of music distribution which doesn't get the attention it deserves.

January 8, 2014 13:40 ebarton

Day two of the Consumer Electronics Show, weather has remained fine and amenable to the conference grind. Traffic has worsened though the transportation backlog resulting from the NE storm has abated somewhat and, while some are delayed, most attendees are making it to Sin City for the start of the show proper. 


1. PlayStation Now: cloud gaming promise for buoyant PlayStation platform

PlayStation announced plans for launch of PlayStation Now: fully streamed remote server (or cloud) provisioned gaming to all PlayStation platforms, Bravia TVs, tablets and smartphones. US beta in January followed by full rollout by the end of summer with global rollout plans to be confirmed in the near future. Rental and subscription have been confirmed as the two charging models. PlayStation recommend a minimum 5MBPS downstream connection for an optimum experience.  

The promise of video streamed games on demand may finally start to be fulfilled. VSGoD services stream games to any connected device with a screen and controller inputs. Because the game is processed remotely it doesn't matter how powerful the hardware is: hence a graphically intense PS4 title is playable on a handset as long as the network connection is good enough. 

PlayStation also confirmed that the service will eventually be extended beyond Sony devices marking the emergence of a digital platform with increasing levels of device agnosticism. Android, iOS and whatever OS compatible PS NOW apps could deliver a PlayStation gaming experience to non-Sony devices. The potential addressable market, particularly when we include handsets, is at a completely different scale to what PlayStation has had to work with in the past. 

This was announced at the same time as confirmation that PlayStation 4 had sold through 4.2m units as at 28 December 2013, beating Xbox One by around 1m units confirming our view that the cheaper price and graphical superiority would resonate with consumers, despite a worse launch line up of games. PS4 has now outsold Nintendo's Wii U on an LTD basis, confirming an existential crisis for Nintendo in home consoles. Together Xbox One and PS4 have sold through over 7.2m units since November in a limited number of launch territories (neither has launched in JP yet), an excellent start to a new generation many believe may be the last for dedicated home console hardware. 


It's all a Stream

- At a stroke all Sony connectable screen based devices have access to a games catalogue spanning three home console generations, two handhelds and an Android based PS Mobile library. 

- Bravia smart TVs become games consoles. Handsets and tablets can suddenly play games with graphics significantly better than those they can process on the device. Once console only exclusives are playable on PC based laptops. 

- the technology works: graphically intense showcase God of War 3 looked and played well in a demo on a 60 inch Bravia. Only during particularly fast pans could one detect some minor judder and this would probably not be noticeable to a layman who wasn't looking for some indication of flaws in the stream. 

- PlayStation's huge back catalogue of games is one of the broadest, largest and finest games catalogues available. PlayStation now has a new way of monetising this catalogue. We expect there to be some negative impact on pre-owned games sales as gamers move to streaming catalogue titles instead of buying a second hand disc. 

- streaming games demos means there is no need to wait for large downloads for demos which take time and cost significantly more than streaming the same demo. 

- backwards compatibility can now be enabled by VSGoD rather than in silicon. 


Like the Cat that got the Stream

- we expect this will be additive to retail sales (both packaged and digital) for some time yet. Spending on streaming will cannibalise retail pre-owned sales to a mild to moderate level however retail pre-owned will continue to thrive as it is a distinct consumer experience. Whether it will increase overall spending on catalogue games is an interesting question: initially we suspect not but that spending will shift from retail pre-owned and catalogue sales to streaming leaving overall market size at around the same levels. Obviously as non-Sony devices are enabled the long term potential for spending growth is significant. 

- we wonder whether fixed and mobile networks can handle the demands of fully streamed gaming. Headline speed of 5MBPS isn't too demanding in many territories (it will be an issue in some) but bandwidth caps will be an issue. Certainly using a mobile network to access PS NOW could be problematic on many levels for a few years yet. PlayStation may want to explore connectivity bundled with PS NOW subs in order to drive subscriber growth. 


We will revisit our VSGoD forecasts in the light of this announcement: backing by a major platform owner is a significant fillip for the distribution method. 


2. Cloudy with a touch of TV

Sony also announced plans to launch a subscription based OTT TV service (aka virtual MSO) in the US market, combining linear TV and on-demand services such as Netflix. Details were scant though they did confirm they would begin testing the service this year in the US. 


Veni, Vidi, OTT

- Sony has a large installed base of addressable devices to target across PlayStation, Bravia TVs, Vaio laptops, handsets and tablets so might not face similar initial market volume challenges which spooked Intel's Oncue initiative (reportedly close to being sold to Verizon who might well compete with Sony in this nascent space). 



- good content is expensive and outside a deal with Viacom precious little is known about Sony's content relationships. What we do now is that content owners will not lower the price for a new entrant: Sony will have to sign some big cheques and guarantee some enormous minimum payments to secure the quality of TV content which is necessary to drive subscription growth. 

- the competition for premium TV and video subscriptions in the US is already intense. Getting a new service to scale and grow fast enough to not sustain huge losses resulting from payment guarantees to content owners will be challenging if not impossible. Sony has spent some years sustaining significant group wide losses which were relatively traumatic: does it really want to dive headlong into a business which could repeat this process?


We expect premium OTT TV subscription services to become a significant segment of OTT spending over the next five years and our latest OTT forecast, available at

reflects this view. Our forecasts will remain unchanged providing two to three providers launch in the US alongside Sony in 2014.


3. Viva Conviva

Conviva is cloud based technology which enables online video providers to optimise stream delivery and quality. Conviva code is embedded in apps provided by services such as ESPN and HBO. This enables realtime reporting of a dizzying array of video performance metrics such as bitrate, resolution, video protocol, device, view time, player version etc etc. This data is aggregated and used by Conviva to optimise video delivery at a huge scale meaning Conviva algorithms will reroute stream delivery across the public Internet depending on whether a given CDN's performance is dipping or will recommend delivery at a different bitrate in order to optimise quality across millions of streams, amongst a host of potential actions to improve the quality of what the audience sees on the screen. 



- Conviva's scale, with much runway for growth remaining, is impressive. Conviva optimises 4b streams per month across 1.6b devices. This yields a huge amount of data to inform Conviva's algorithms to further optimise video delivery. 

- Conviva is agnostic: it doesn't care about devices, OSs or competitive considerations meaning it works with everyone and hence has a uniquely broad view of online video delivery. 

- Conviva has highlighted numerous additional applications for the huge and valuable volume of data it collects (which I won't share to spare their blushes): this is a firm with significant runway for growth territorially, potential new clients and for new product development. 


I still need Convi-vincing (sorry)

- I'm struggling to think of a negative point. Maybe someone will acquire them and screw things up. Maybe there will be a zombie apocalypse. Let's cross our fingers. 


Onto day three, we will keep you updated with what we think are the interesting media related developments from the show.