As the year approaches the end, let’s look back and review some of the impactful events in the digital media business in 2010. Many of those events generated substantial buzz when they just happened, but quickly people forget about them and move their attention on to new things. As a year-end review, this summery is intended to help us relearn these events and gauge their impact on the industry and companies in the future. Events about Google:

Google claimed it was threatened by cyber attacks originated from China in January. Following the event, Google decided to stop censoring search results in China, which put themselves in a direct confronting position with the Chinese government. As the conflict between Google and the Chinese government deepened, Google had to redirect the traffic on its China site to the Hong Kong homepage. Google had not only lost market share to its competitors in China but also lost plenty of talent due to the uncertainty of its business in China. With only a constrained access to the largest Internet market in terms of users, now Google’s growth solely relies on the expansion to other business lines, such as display advertising, Android platform and TV business.

Google’s social network initiatives remained unsuccessful. Google Buzz was introduced in the year, but even with the Gmail integration the service has been forgotten by the public. The once highly buzzed Google Wave was terminated by Google, as most people cannot figure out how to use the innovative service. Despite the popularity of Gmail, the dominant Facebook and the growing Twittier and LinkedIn will only make Google’s future in social media gloomier.

Google unveiled Google TV with its partners Sony, Intel and Logitech. While Google had depicted a splendid picture for the Google TV when it introduced the product, its lack of premium content support and the severe competition from Apple, Microsoft and Amazon already led many to question the feasibility of the product. Sony’s slash on the price in the holiday season for Google TV-embedded TVs magnified the concerns on the product’s outlook. 2011 will be the key year for Google TV’s success. And if Google could build healthy relationship with Hollywood studios for the platform, it would still gain some ground in the new TV business.

Events about Apple:

Apple’s introduction of iPad has clearly changed many aspects of digital media consumption. Publishing and news industry has found a new and more versatile content distribution platform, which seems could further offset the decline of traditional revenue streams. With a bigger screen compared to smart phones, iPad is a better device for mobile video consumption. Movie studios and pay TV companies started to put strong focus on distributing their content through iPads. We expect the iPad to continue its robust growth in the next year, along with its importance to premium content distribution.

Games have always been top-selling apps in Apple’s app store. The introduction of Game Center on iPhones and iPads makes Apple a formidable player in the social game distribution business. Going forward, the gaming piece will continue to augment the appeal of Apple’s platform.

Events about others:

Microsoft’s Kinect has shown signs of good reception in the holiday season. With the tremendous investment put in the project, it finally delivered quality gaming experience to casual gamers, dwarfing Wii’s motion censor device. Although Xbox only accounts for a relatively small portion of Microsoft’s total revenue, the success of the device could pave the way for its home entertainment strategy if implemented correctly. The solid experience of Kinect also counters the argument that Microsoft has lost the innovation capability. In addition, Microsoft struck a deal with ESPN to provide ESPN programs to Xbox Live users.

Netflix keeps up its growth and now has 16 million subscription members. Given its expansion to other devices and other countries, we expect the service to maintain the growth momentum in the coming year. On the other hand, Hulu also adopted a paid revenue model with the introduction of Hulu Plus. But given the limited content catalog, Hulu Plus faces challenges to grow its paid users.

Facebook keeps the ball rolling by introducing a number of new features and services on the platform. Meanwhile, social games gained attraction with their virtual currency revenue model. Games from Zynga and Playdom have gained millions of users, most of which are based on social networks. As the ad rates on social networks remain low, the social gaming business could help Facebook break through its profitability challenge. And the social gaming companies will surely benefit from the secular growth of social networks.

A lot of the analysts that follow Google have been recently focusing on Google’s intention to acquire Groupon, an Internet collective purchasing site. While the talk between Google and Groupon has stalled with Google’s bid being rejected, the Internet search giant still managed to do some shopping for the holiday season. It has grabbed Widevine for an undisclosed amount, a Digital Management Rights (DRM) solution provider which has been on Strategy Analytics radar for a long time. As DRM business isn’t something that is interesting to consumer media, the discussion on media about this acquisition is far less than that about the Groupon deal. But as important as Widevine’s role in the premium content distribution value chain, this acquisition isn’t just discretionary spending for Google and it demonstrates Google’s dedication to be involved in the premium video content business. Widevine explains itself to be capable of doing three things: Multiplatform DRM, Enabling TV Everywhere and video optimization. These are all of great importance for Google in relations to premium video business. YouTube has been growing as the bellwether in the user generated content (UCG) business in terms of video views, while the profitability issue of UGC is still something that YouTube needs to overcome. With the DRM capability provided by Widevine, YouTube is more likely to obtain serious premium content which could markedly beef up the money-generating capability of the popular web video site. And given Widevine’s credibility for helping pretect content for Hollywood studios, it makes studios more eased to partner with Google in the video business, which has been regarded as the major disruptor for the traditional media businesses. The more premium content availability will also enhance Google TV’s competitiveness in the market, which has been reported having trouble to get deals with major Hollywood studios and being forced to cut the price for the new Google TV-embedded gadgets. Moreover, Widevine’s know-how in delivering video content to multiple platforms will benefit its Android system as well, by enabling the Android phones more securely and easily getting access to premium videos. While these implications are all positive, the acquisition of Widevine is far from a home-run for Google to succeed in the premium video distribution business. Significant challenges lie ahead that seem quite unaddressable for Google in the short term. From a revenue perspective, Google is a advertising driven company that controls online content distribution and ad distribution. Small online content creators are in a weak position to negotiate ad revenue terms with Google, whereas Hollywood studios mandate a close supervision on their ad operations. Even Hulu, the joint venture by the three major networks, has to compromise to the networks’ own sales operation when it comes to premium ad inventory sales and management. The fight over control of ad operation will be a key obstacle for Google and Hollywood to overcome before a long-term solid partnership being established. In addition, some analysts speculate that Google might be planning to offer Widevine service for free to content providers. This idea is pretty in line with Google’s Everything-free strategy, from online search to smartphone to TV strategy. It clearly will lure many content providers at least to try to start relationship with Google and potentially will shake up the entire industry. But such a drastic shake-up could result in backlash from industry incumbents and arouse anti-competition concerns. It would also be expected for Google to introduce a Google-branded video store or service in the future, armoring the tech giant in the battle with Apple, Amazon and Netflix. -Jia Wu

Over-the-top video services have been putting mounting pressure to pay TV providers. Apple TV is well received by the reviewers, even though nobody has used the real product. Netflix's stock price just hit a new 52-week high as it expands its streaming service into Canada and its long-time competitor Blockbuster filed for chapter 11 bankruptcy. Amazon is preparing its own streaming service, so does Sony. Everything together depicts the picture that pay TV companies are doomed. The prices for pay TVs' current plans have long been perceived as ripoffs. According to Strategy Analytics recent consumer survey, only 20% respondents say that the value-for-money of their pay TV services exceed their expectations. This is clearly a vital weakness of current pay TV services. But on the other hand, because of the overpricing pay TV providers are able to pay media companies big checks for their content. Everyone loves money. This is the reason why media companies and content producers have been reluctant to give their content to the new online distributors, such as Netflix. The advent of Apple TV seems to have taken a big step in the direction of solving this problem, offering a pretty cheap price for the content to consumers, i.e. $3.99 per movie rental and $0.99 per TV show episode. And because of its power in the consumer electronics and media industry, a lot of the major media companies are willing to participate in the deal in the hope of generating incremental revenues in addition to existing distribution channels. But today Viacom has said that the price for content on Apple TV is too low and they will not participate in the service. Other national broadcast networks owned by NBC Universal and CBS Corp. and all cable networks chose not to participate due to pricing and other strategic concerns. It is a big blow to the fledgling Apple TV service. Fundamentally, it is a confrontation between media companies and consumers, with content distributors being as the intermediary to alleviate the tense. Content owners want more money for their content, whereas consumers want to save money from their entertainment spending. As a result, a lot of consumers flock to Netflix due to its low pricing. But media companies tend to favor pay TV services for their content access, as they pay more. The end of the story is that consumers are not completely happy with Netflix as they don't get new content from it, but pay TV services suffer too, witnessing their subscribers eroding. From economics standpoint, it is not maximizing the social benefit as media companies are leaving the money on the table by sticking with overpriced pay TV services. It is clear though that anyone who can address the $64 million question in the video entertainment industry will lead itself to prosperous growth. And the industry needs a compromise. - Jia Wu

A new Web TV Portal launched in the UK this week. It is made up by the remnants of “Project Kangaroo”, the Web TV joint venture between ITV, Channel 4 and BBC which was blocked by the UK’s competition commission a year ago. After Project Kangaroo stalled, the technology platform was scooped up by infrastructure and media services company Arqiva which is now launching its own Web TV portal named SeeSaw. At launch, SeeSaw is offering 3,000 hours of television content and will be the first major Web TV portal in the UK that offers content from UK broadcasters BBC World, Channel 4 and Five in one place. Content from ITV, however, is notable for its absence.   ITV is believed to be contemplating an exclusive deal with HULU, the American Web TV joint venture between Disney, News Corp and NBC Universal, which is yet to launch in the UK but most likely will instantly become SeeSaw’s biggest rival once it does. Until now, many broadcasters in the UK and elsewhere have done reasonably well from offering their own individual Web TV services but what HULU has made devastatingly clear in the US market is that – given the choice – most consumers will choose a Web TV portal over individual channels' Web TV services. In the long term, there is likely only going to be room for a couple of large mainstream Web TV portals in each market. This is just the nature of the Internet and we’ve seen it over and over again with Google in search, Facebook in social networking and Amazon in ecommerce. The Web TV space is no different in this respect and at the moment it’s very much a race for land-grab and positioning in a nascent but rapidly growing new market. The fact that SeeSaw managed to launch before HULU in the UK market will undeniably give it a head start in attracting users but the real test will come when the American Web TV portal finally launch later this year. Client Reading: European Web TV: Era of Anywhere, Anytime TV Approaches

Apple’s iTunes is by far the dominant player today in digital downloads, not just for music but increasingly for video and other media. It’s widely accepted that the tight integration of the iTunes service with Apple’s range of digital media devices has been critical to the company’s market leadership. But Strategy Analytics research suggests that even with its current dominance, Apple cannot afford to rest on its laurels. In our UK broadband user survey, people are still more likely to choose Amazon as the place to visit for digital media downloads. Even for digital music, 26% of broadband users say they would prefer Amazon to iTunes. The gap is wider in video (Amazon 16%, iTunes, 11%) and games (Amazon 16%, iTunes 5%). These findings demonstrate that leadership in the early stages of a market do not guarantee long term dominance. Amazon is clearly a much more powerful retailer than Apple and if it executes successfully in its online media strategy it should become a serious challenger for the number one position. Twitter: twitter.com/dmercer15 Client Reading: Digital Media Survey: United Kingdom - Country Profile

Pioneer’s plasma TV business is the latest casualty of the recession. The company announced today that it is ceasing TV development immediately, and will close its TV business altogether by March 2010. So it looks like Panasonic will be the only major Japanese vendor left holding the plasma baby in 2010, as I discussed 18 months ago. Koreans Samsung and LG will help to keep plasma going, but are increasingly focused on LCD and well behind Panasonic in the race for PDP market share. Pioneer tried in vain to hold the line on premium, high quality TVs. In fairness it was always going to be difficult even in good economic times. Pioneer’s TVs were generally regarded as some of the best on the market and served as an aspiration for those who could “only” afford a Sony or a Samsung. But the gap between the “mass market” and Pioneer was undoubtedly getting narrower, and Pioneer was going to get caught in the squeeze sooner or later. When Amazon is offering Toshiba 42” 1080p LCD TVs for £499, it becomes harder than ever to justify paying four times the price for a similar sized Pioneer, especially when most retail stores are simply not capable of, or interested in, demonstrating the differences in picture quality. The severe downturn in consumer electronics has accelerated the impact of plasma’s relative decline on Pioneer. What is left of the company’s display technology expertise now resides with Panasonic, and even in this downturn that huge company should be powerful enough to keep plasma alive for a few more years. It will be a long and lonely struggle. Client Reading: Digital Media Devices Global Market Report

Strategy Analytics has just published its analysis of a survey of console and PC gamers in the US. The ability to download content to games consoles is a relatively recent innovation but is now a feature of all the major systems – Wii, Xbox 360 and PS3. Our survey found that nearly a third of gamers in the US claim to buy and download games to a video games console. 21% are doing so on a monthly basis or more frequently. This compares to 35% of gamers who claim to buy games from a retail store at least on a monthly basis, or 28% who are ordering packaged games online for home delivery. Buying from retail stores is still the number one choice for less frequent games buyers. We also found, perhaps not surprisingly, that the games console brands (Wii, Xbox, PS3) are the first choice when it comes to buying games online. 27% of gamers willing to buy games online would choose the games console brand, compared to 19% who would go to the games publisher and less than 15% who would visit an online games specialist or general online retailer like Amazon. Microsoft’s recent revamp of its Xbox 360 interface was intended in part to encourage greater participation in online activities and paid-for downloads. It seems as though many console users are indeed ready and willing to make the most of online services and games downloads. While there is a clear opportunity for console platforms to develop new revenue streams, the outlook for bricks and mortar retailers appears to be less rosy. The study comes from Strategy Analytics' Digital Media Survey, conducted between April and June 2008 sampling 3,526 age 15+ broadband users across Germany, France, Italy, Spain, UK and the US. The US sample was 1000 broadband users. Twitter: www.twitter.com/dmercer15 Client Reading: Digital Media Survey: An analysis of US Gamers

Widespread rumours of Xbox console price cuts in Europe were confirmed today. The entry level SKU, Arcade, will fall to GBP159.99. The mid-range Pro will sell at GBP199.99 and the Elite at GBP259.99. Euro prices have fallen to equivalent levels. Amazon.co.uk is already selling the consoles with additional discounts to the new recommended prices. Microsoft's Chris Lewis, who heads up Xbox in EMEA, told us that the Xbox was now entering the "mass market space" with these new price points, opening up a "much broader range of consumers". Clearly the fact that the Arcade is now the cheapest console of the current generation will help to bring it to the attention of a wave of customers that have previously dismissed the current range of products as too expensive. While the Wii remains difficult to find at its recommended GBP180, Nintendo will be watching carefully for any signs that potential Wii buyers opt for the Arcade because of its wider availability or lower price point. Yes, the buyer segments for Wii and Xbox have been very different so far, but for price-sensitive customers the new prices may make all the difference. The PS3 is now left once again as the most expensive console. Sony will be nervous that the PS3's recent sales surge may fizzle out now that the best Xbox 360 is £40 cheaper, and the cheapest one is nearly half the price of a PS3. Sony too will be scrutinising the daily sales reports, but will probably try to hold out until later in the year before making its next price move. We asked Lewis to address the question of the impact of the price cuts on Microsoft's profitability. He indicated that the company's Entertainment and Devices division has moved into "overall sustainable profitability" in the last few months, and claims that the new console price points will not significantly change this position as it continues to drive cost out of console manufacturing.

Given that Sony released the news of the $499 60GB console two days before E3 opens, we can expect further significant announcements at the press conference tomorrow. Rumours of a video download service are probably not far from the mark. Reports of the impact of the price "cut" (a $499 20GB PS3 was available at launch but few were sold) vary from the "hardly anything" to "new market leader emerges", with Sony optimists pointing to the fact that Amazon's lists put the PS3 now as the number one console. Bearing in mind it comes packaged with a free Blu-ray remote and five free BD titles, this certainly seems like a rather appealing deal. Europeans are awaiting confirmation of the scale of the price cut in their part of the world, but I would guess £350 for the UK. The new price was inevitable and necessary and will go some way towards clearing the inventory that has built up between what Sony says it has shipped and what has sold through to consumers. High definition fans will not have failed to notice that the 60GB PS3 is now retailing at the same price as Sony's BDP-S300 BD player, which also comes with the five-disc offer. Industry debate continues over how much profit, if any, Sony is making on PS3, but even if it isn't, the S300 margin must be a lot healthier than the PS3's. One way or another, PS3 and BD component costs are plummeting, as expected, so this will be the first in a series of downward price moves over the next couple of years.