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.

We don’t do this very often folks, but as a seasonal gift we have made our 2011 Digital Home Predictions report available to everyone, whether a Strategy Analytics client or not. You can download the full report here. A lot of the talk at the moment is about Google’s troubles with its TV offer: there will be little to see at CES after all, much to the annoyance of Google’s many partners no doubt. But this setback should not be seen as a a sign of general malaise in the connected TV industry: Apple has just reported that its TV solution is finally gaining some traction, and we expect continued progress from other key players in the rollout of internet TV to the big screen during 2011. We may even see Facebook moving into this space. Headline number of the year will be tablet revenues, which we predict will exceed netbooks. We also think Apple needs to revamp iTunes to take account of the connected device era, and Nintendo may have to take the plunge and launch the successor to the Wii. We’ll see further innovations in the TV control arena, with touchscreens, phone apps and motion control all featuring more widely. But 3DTV is likely to see only slow progress: sure, people will be buying 3D-enabled sets, but less than 20% will be watching 3D content on them. And one more stat to whet your appetite: more than one billion people worldwide will be using social networks for the first time during 2011. And since you are one of them, please go ahead and read the full report, and any comments and feedback are always appreciated. Best wishes for a peaceful holiday season. David Mercer Client Reading: Profiling the Connected Media Consumer - UK

Social networks, such as Facebook, MySpace and Twitter, which used to be a nascent Internet phenomenon only a few years ago, have now become an indispensable element for many of us in our daily lives. Accessing social networks and sharing information has quickly become one of the most important online activities for many Internet users around the world. With more than 500 million users globally, Facebook, the largest social network in the world, would be the third largest country by population, on the heels of India and China. And as a communication tool, social networks are already starting to replace or complement many of our existing online communication applications, such as email, instant messaging and news.   However, our just published report, “Global Social Network Market Forecast”, finds that there are significant regional differences in the uptake of different social networks as well as in business models for how social networks are monetized. Less than 40% of Internet users in Asia were regular social network users at the end of 2009 compared to approximately 60% in North America and Western Europe. Advertising remains the most widely recognized revenue model for social networks, despite that the highly commoditized social network ad inventory means that most social networks can only charge advertisers a fraction of the price other online publishers charges. Social games feed social networks with a cut of their virtual items sales, and social networks such as e.g. LinkedIn have for many years been successful at charging for a premium tier service, where recruiters and job-seekers can utilize the social network’s premium functions to reach their goals of finding a candidate or a new job opportunity. There are also different revenue models for monetizing social networks emerging in different regions. Whereas revenues from sales of virtual items are estimated to only represent around 9% of total social network revenues in North America this year, it is expected to represent about 22% of revenues in the Asian market. And while advertising has been and will continue to be the main revenue source for most social networks, revenues from selling virtual items and social network credits will likely ramp up more rapidly in Asia than in the Western World. Social networks, such as Tencent and Cyworld in Asia, already generate significant revenues by selling avatar accessories and virtual gifts. Nevertheless, based on the successful experience of these companies, we expect to see other social networks, both in Asia and in the Western World, to adopt the virtual items business model for gaining incremental revenues going forward. As the Asian Internet market continues to grow at breakneck speed, we projects that this region will represent the greatest growth opportunity for social networks over the next five years. Whereas Facebook has conquered most places in the Western World, it has struggled to gain traction in many Asian markets. We believe Facebook now needs to increase its focus and commitment to the important and rapidly growing Asian market if it wants to remain the world’s leading social network five years from now.

GLOBAL SOCIAL NETWORK USERS BY REGION, 2010 VS. 2015

Client Reading: Global Social Network Forecast

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

The depth of the recession in the US consumer electronics market was highlighted today by CEA data which confirmed a decline in dollar revenues in 2009 of 12%. The outlook for 2010 improves but only in the sense that the rate of decline falls to 3%. In the meantime we're hearing news of new 3D TV channels already, with both ESPN and Discovery throwing their hats into the ring. This is great, if expected, news for the many 3D-ready TVs we expect to see over the next few days. At this evening's CES Unveiled event Sensio were showing their passive 3DTV, even though the company today announced its partnership with Visio to launch an active 3DTV later this year. Mitsubishi was also showing its laser 3DTV with the adaptor which will be necessary for compatibility with Blu-ray 3D players when they are lauinched. Logitech was showing its new Lapdesk N700, a laptop “cushion” with in-built speakers designed for enhanced laptop usage in the comfort of the armchair. The peripheral retails at $89.99 and also features an in-built cooling fan to prevent over-hearing, a familiar problem for those many TV viewers who now sit with a laptop on their knees. Logitech have thoughtfully added a grip to help keep the laptop steady, but unfortunately in my case it failed to prevent the Macpro falling to the floor. No damage done, luckily, but perhaps evidence of a need for further improvement in design. Logitech was also demonstrating the fruits of its recently closed acquisition of Lifesize Communications, a videoconferencing specialist. On display was its Passport set-top videoconferencing device. This retails at $2500 and allows anyone with a minimum 2-way 1Mbps broadband connection to communicate using HD video (720p). The service downscales to lower resolutions for slower bandwidth connections. Logitech claims that this device is a third of the price of any other similar product on the market. That may be true today but is unlikely to remain so for much longer. Videoconferencing and telepresence are shaping up to be one of the emerging trends of this CES and we will hear a lot more over the next few days, in addition to the Skype/Panasonic/LG announcement today. Yet another OTT video set-top box was being demonstrated by Syabas with its Popbox product. This grew out of the company’s Popcorn Hour device. The Popbox has been designed to be especially user-friendly, and the user interface does appear attractive and accessible. The service integrates currently 20 “content application channels”, which means things like Netflix, and is working with 200 application developers. It will launch in March 2010 and retail at $129, plus $20 for the optional WiFi module. The Popbox is 1080p-capable, although the only 1080p content was demonstration material. If Syabas manages to sign 1080p deals with content providers it will certainly be a step ahead of most competitors. ProVision CEO Steve Cliffe was confident enough in his company’s wireless HD technology to carry a laptop across the show floor while it streamed 1080i HD content, and there was no loss or deterioration in signal. This UK firm was founded by professors at Bristol University, and uses proprietary error correction and RF management techniques to improve HD video streaming over 802.11n. The company is talking to set-top box and TV manufacturers looking to support HD distribution to multiple home devices. Another UK firm, Imagination Technologies, was launching its Pure digital radio products for the US market. Pure is the leader in the UK but virtually unknown overseas. It will, rightly, tread carefully as it enters the notoriously challenging US market, and will obviously (since the standard is not used) drop DAB from its US product line-up, instead concentrating purely (sorry) on internet radio. Its Sensia product is the highlight of the range and features a full-colour touch screen LCD display as well as additional interactive capabilities like Twitter and Facebook. Pure confirmed to us that video-capable devices are a natural step forward and can be expected in the next year or so. Client Reading: HDTV: Standards Muddle Clouds Outlook For Wireless Displays

While Facebook, MySpace and Twitter grab the fast growth headlines in English-speaking markets, in France it is video sharing, rather than just blogging or messaging, sites, which are leading the way. The leader in the field is DailyMotion, and Strategy Analytics research indicates that four million people in France are uploading videos to video sharing websites on a weekly basis. There are still more people in France - 5.3 million – who are checking social network sites such as Facebook at least weekly. And 7.7 million people are using social network sites at least a few times a year. But the overall user base is higher for video sharing sites at 10.8 million. The contrast with the UK is stark. Here there are 15 million people – three times the number in France, with a similar population – checking social network sites at least weekly. And while 10.6 million people in the UK claim to upload videos to video sharing websites like Youtube at least a few times a year – similar to France - only 1.3m people in the UK do so at least weekly, a third of the level of activity in France. The early entry (in 2005) of Dailymotion to the French market is one obvious explanation for this difference. But I can’t help wondering if broadband connection speeds are also part of the story. Any UK broadband user who has tried to upload video will be familiar with the frustrations of slow upload speeds, which are typically well below 500Kbps. In France Free offers upload speeds of 1Mbps, which may not seem like a big difference but can halve the time spent uploading videos. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Survey: France Country Profile

Social network services have boomed in the last couple of years, led by now well-known brands such as Facebook, Myspace and Bebo. I profess to finding the whole thing a little bemusing, but that’s doubtless down to my unsuitable demographic. Perhaps if I’d been born 20 years later I’d now be spending hours every day updating my social pages and checking out the latest activities of “friends” I never thought I had or needed. Strategy Analytics’ own survey data confirms that I’m in the wrong age group to appreciate the value of these services. Of online users across the US and Europe, 63% of 15-24 year-olds and 52% of 25-34s use a social network. Once we reach middle age the proportion drops below a third: 30% of 35-44s and 25% of 45-54s. Only 15% of those lucky enough to have reached or be approaching retirement (55 and over) have discovered the delights of MySpace and Facebook. In actual fact, as an occasional user of Linked-in I do classify as a “user”. I did also register with Facebook and receive invitations to “connect” from “friends” I have never heard of. I suppose grumpy old men just aren’t cut out for all this friendship. It’s good to know today’s youngsters have so many options ahead of them… Other findings from our study: UK internauts are most likely to maintain a social network, with just over half claiming to be users. The proportion in the US is 44%, and 37% in Italy, but in France and Germany only just over 20% of internet users are networking socially. Our findings suggest that social networks are attracting huge daily audiences. In the US more than 30 million people are using a service every day, while in the UK the number is more than 8 million. That’s a lot of young people being pulled away from more traditional pursuits like watching TV. In spite of that, 69% of 15-24 year olds still claim to watch TV (ie TV shows or movies on the TV set) on a weekly basis, compared to 74% of the population on average. But the term “watch” should probably be applied loosely: anecdotally it is clear more and more people are tapping away on PC keyboards or cellphones while the TV show runs on the big screen ten feet away. Client Reading: Social Media: Brits Lead in Social Network Usage

Social networking is not just about the teenagers on Myspace and Facebook. Younger children are spending hours in online worlds like Club Penguin, as I can testify from personal experience. Club Penguin was set up by Canadian company New Horizon Interactive in 2005, and has just been acquired by Disney for $350m. It has 12 million activated users, 700,000 of which pay nearly $60 a year for the premium service (my daughter, or rather her parents, being one of them) - that's $50m in revenues from a measly kids' game site. Club Penguin is terrific. If I was nine years old again I don't see how Lego or Subbuteo would get a look-in. It can be nerve-wracking for adults to imagine that younger children are interacting in real time with other real people, but, inevitably, they think nothing of it, and happily explore the cartoon landscape making "friends" at the drop of a hat. One can only wonder at how the social skills of tomorrow's adults are changing relative to those of previous generations. Disney recognises Club Penguin as a safe-kid zone, and I've seen nothing in the game to dispute that. It's something many concerned parents are prepared to pay for, dreading the time when penguins become babyish and Facebook, or whatever next year's hot site is, takes over their children's lives.