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.

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

I remember a couple of years ago, I read a great book called The Search: How Google and Its Rivals Rewrote the Rules of Business and Transformed Our Culture by John Battelle. In the book, the author depicted a scene that a mom ordered a baby diaper product for her kid due to a TV commercial shown on her TV. And this specific diaper commercial was displayed to her at this time because the advertising system knows her information and web search queries. This scene sounded for me at that time like a futuristic novel, which is beautiful but not realistic. Today Google announced Google TV, a product that could be a big stride toward realizing the scene. Basically, Google TV is a set-top-box that enables users to consume web content on the TV screens. Although it is not new and companies like Boxee are already doing this, it is still great to see that Google offers a nice integral interface between TV and web content so that you don't have to press input button in order to switch to computer desktop. More importantly, you have the universal web search on your TV screen, which could potentially tap a huge advertising market for Google. TV advertising is a $165 billion market. And if the vividness of TV commercial could be combined with interactivity of online ads and the information of users search intention, it would create the new generation of TV advertising and help Google build its next multi-billion dollar business. I believe it is a great vision that Google has. But barriers remain. The vision will only be achieved if Google TV can hit critical mass. The key strategy for Google TV is to extend its search to more audiences rather than selling the boxes. To realize this strategy, Google TV needs to be adopted by mainstream population. But do normal users nowadays have clear understanding of Google TV and its benefits? Probably not. Even if they do, are they willing to spend money on the benefits and how much? We don't know the price point for Google TV yet, but this is a question to be answered. If the value proposition is not strong enough, it is hard for Google TV to achieve mass adoption. Moreover, Google TV could potentially hurt cable business given the abundance of web content. If we can get the same show online for free, there is a fair change that we might want to cut our cable subscription. In this case, content producers' largest revenue contributor, cable companies, will put more pressure on content owners, letting them put less shows online for free. Then we will either see less free premium content online or more paywalls for online premium videos. This may eventually make free web video content less compelling. In short, to achieve Google TV's great strategy and vision, many consumer and operation related issues are waiting to be resolved. And implementing it is not an easy job. Jia Wu

The buzz at the Game Developers Conference (GDC) this week is focused on the new OnLive service to be launched in “winter 2009”. OnLive has been in development for seven years and is headed by Steve Perlman, who previously founded WebTV, which was sold to Microsoft as the foundation for its IPTV platforms. OnLive’s hallmarks are that it doesn’t require a “console”, or at least in the traditional sense. In fact, there is a small (“pack of cards” size) module (“microconsole”) which plugs into the TV set and connects it to the broadband service. It will also support “almost any” PC or Mac with a simple browser software download – no microconsole required. All games are then delivered from remote servers with very little local storage or processing required. OnLive also owns Mova, which develops facial animation technologies. OnLive claims to have the “support” of top games publishers, including Electronic Arts, Ubisoft, Take-Two Interactive Software, Warner Bros. Interactive Entertainment, THQ Inc., Epic Games, Eidos, Atari Interactive and Codemasters. The list sounds impressive, but “support” is just a little too vague. It would be surprising if games publishers did not “support” a venture that could cut out the middle men (platform owners, retailers) which take a substantial cut of industry revenues. No pricing has been confirmed, but the business model will be monthly subscriptions, and the aim is clearly to squeeze as much cost out of the microconsole as possible. Don’t be surprised to see “free” consoles being offered in return for long-term contract commitments. Online content has already featured in the games industry for some years. In the PC world games content is frequently downloaded, either as standalone applications or in combination with disc-based delivery. And online features strongly in each of the latest generation of TV consoles, including full game downloads. As I reported recently, Strategy Analytics research has found that nearly a third of gamers in the US already claim to buy and download games to a video games console. 21% are doing so on a monthly basis or more frequently. What is different about OnLive is that it claims little or no “downloading” is required. It claims to have advanced compression technologies that allow a 1MB software player to render the content, which is processed in real time on remote servers. This model clearly depends on the availability of a fast and reliable broadband connection to the TV set. The OnLive microconsole will include USB, HDMI and ethernet. I’m surprised if ethernet is the only connectivity option: it’s an impractical option in many homes, so wireless or powerline connectivity also needs to be available. The established console vendors, Nintendo, Microsoft and Sony, will express scepticism that OnLive can really compete, and there are certainly doubts about the viability of “cloud gaming” in the real world of dodgy internet service, wireless LANs and the battle over data prioritisation with broadband service providers. Already the gaming community is arguing over latency rates and whether OnLive’s technology can really meet the demands of hard core multi-player virtual worlds, or how close it can come to delivering the 1080p video offered by Sony and Microsoft (answer: not very). But OnLive’s unveiling has at least put the cat amongst the proverbial pigeons: the 40-year history of video games consoles has been based on the assumption that you need some piece of serious hardware attached to the TV set. It is only a question of time before broadband brings that assumption crashing to the ground, but the end of this year is probably a few years too early for this model to create a significant commercial impact. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Survey: An analysis of US Gamers