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.

Having tested Microsoft’s Xbox Kinect for the last few days I can confirm that it has the elusive wow factor. Controlling on-screen icons and menus with a wave of the hand is the first sign that this stuff is definitely not of the old generation. Seeing your own avatar mirror your movements introduces the real sense of spookiness which only comes with genuinely ground-breaking technology. And when you are first signed into the service simply by entering the room, the realisation dawns that the age of intelligent technology may finally be upon us. My other conclusion is that if you are not physically fit before you buy Kinect, you certainly will be after a few sessions of gameplay. Microsoft is very clear that the initial raft of Kinect games titles are aimed at its “non-traditional” audience (implying, not entirely accurately, spotty teenagers shooting each other from the comfort of oversized armchairs) and involve varying levels of energy expenditure from a standing position. You may or may not be relieved to know that there is at least one application which does not require you to abandon the sofa: VideoKinect is the built-in video communications service, allowing Kinect games players to take a break to share their exhausting exploits with friends and relatives around the world. As for the games themselves, we found the bowling and track and field in Kinect Sports a lot of fun. Bowling illustrates the strengths of gesture-based gaming because the system appears to recognise genuine bowling actions which are impossible for any controller system to replicate. Track and field includes a variety of athletics events, and, yes, the 100m dash involves running on the spot as fast as you can. Microsoft told me that an elderly 80-year old lady in Australia had enjoyed some of these sports. I would like to see this. Children will love Kinectimals, the classic cutsey furry animal petting game. Choose your favourite cub, cuddle it with your virtual hands, and watch it mimic your actions and learn tricks. Parents of young children should avoid installing this game on their main TV as they will never get to watch TV again. Kinect Joy Ride didn’t work as well for me. This is the main racing game available at launch, and, yes, you have to pretend to hold a steering wheel. I would love this to have worked more effectively, but this is the point at which virtualisation just doesn’t seem to make any sense. Try it at home: See how long you can keep your hands spaced the same distance apart while moving them around in a circle, changing direction frequently, and leaning your body one way or the other to perform tricks. Sorry, but holding a real steering wheel has just got to be a better experience. Microsoft hope that Kinect will help it to “more than double” the number of Xbox 360s sold worldwide so far, which is more than 42 million. Our own core scenario forecast is that Microsoft will fall slightly short of this objective, selling a cumulative 79 million 360s by 2015. Our analysis did allow for further upside to 360 sales as a result of a successful Kinect launch, so we will be tracking its near term progress and impact on core console sales before updating our scenario models. We should also be clear that Microsoft, along with other platform vendors, tends to talk in terms of cumulative sales. Our analysis also takes account of console retirement and replacement, and this could be a critical issue as we begin to understand Kinect’s impact on wider 360 ownership. It is, after all, being offered for sale as a peripheral to existing 360 owners, as well as packaged with a complete 360 console system. Again, the mix between these two packaging options will be important in determining the real impact on the 360’s overall performance. Sales to existing 360 owners may extend the life of the system in those households but will not help to widen the audience. Microsoft’s primary interest will be to increase sales of the 360 itself to new owners. Will Kinect succeed? As always, it will depend on how we define success. Kinect is certainly innovative, and as such it will appeal to existing 360 owners who want to explore the new technology for its own sake or find the new games appealing. Kinect should also bring the 360 more forcefully to the minds of existing owners of other consoles who may be tiring of their current platform. The obvious target is Nintendo’s Wii, global sales of which, as we predicted, are declining by more than 20% this year. While Nintendo works out its post-Wii strategy, Kinect has a window of opportunity of maybe a year to tap into demand from lapsed Wii users. In spite of the enthusiasm indicated above, Kinect is not without its challenges. The biggest concern for many potential buyers will be the space required in front of the TV. Our system is installed in a traditionally small English cottage, and there is just about enough space to use Kinect for the few games we have tried. Demonstrations of some games I have seen suggest that Kinect owners will need clutter-free floor space of three feet by six feet (1m x 2m) at a minimum distance of six feet (2m) from the sensor in order to get the maximum benefit. Xbox actually recommends a distance of 8-10 feet (c. 3m) from the sensor. It goes without saying that this space must be free of all obstacles, alive or dead, if minor injuries are to be avoided. Other commentators have noted the potential for lag in motion sensing. The movements in the self-image window or the avatar certainly appear some fractions of a second behind actual motion. The critical question is whether this has an impact on usability, and so far, in an admittedly short series of tests, I have not noticed any significant negative impact on gameplay. There have been occasions when voice recognition and motion sensing do not appear to function perfectly, but I would not draw any conclusions regarding weaknesses in the technology versus the need for familiarisation. Only time will tell whether these are persistent issues which need to be resolved by further technology enhancements. Kinect’s success will hinge on whether “really clever stuff” is good enough to drive sales, and whether its integration into games is perceived as ground-breaking. Xbox is also taking a risk in focusing Kinect purely on the “active gaming” sector. Nintendo did break new ground with motion control, but Wii games did not always require players to stand up or indeed move around. Microsoft says that developers can deploy Kinect in more “subtle” ways, supporting sit-back gaming. Until such games appear the first titles risk being positioned as a niche market. But overall Kinect is an impressive attempt to take the TV games console industry in a new direction and we believe it will have the initial positive impact on the 360 business which we predicted earlier this year. Judgment on its longer term success will have to wait a few more months once the novelty has begun to wear off, but it would be very surprising if Kinect’s arrival does not push development of games and other TV-based applications in directions we can today only barely imagine. Client Reading: Taming the Waves: Games Console Life Cycles and Platform Competition

I was with Intel executives by chance today, shortly after the first rumours, based on a New York Times story, that Intel, together with Google, Logitech and Sony, are working on a TV set-top box and service. Intel was demonstrating the capabilities of its Atom platform across a range of CE devices. In particular it was showing how its CE4100 processor combined with the MeeGo middleware joint initiative with Nokia could enable more flexible and more advanced IPTV services in the future. Amino, which has sold more than 4 million IPTV set-top boxes worldwide, was on hand to claim that the Intel platform has allowed it to develop new devices much more quickly than traditional processor platforms from ST, TI and Broadcom. And Telecom Italia is set to become the first major telco customer of an Intel-based IPTV platform when it rolls out new boxes in the next few weeks. Intel claims to be in talks with many other telcos, including tier ones, about deploying its solution. Intel made it clear today that its new platform could support Android, as well as many other OSs, while refusing to confirm the rumours of a partnership with Google. Our view is that it would be very surprising if Google did not enter the TV market before very long. It is certainly possible that Intel and Sony could be key partners, although unlikely if these prove to be exclusive deals for any player. Intel for one has made it clear it will be friends with anyone, whether in service provider or retail models. Intel’s roadmap calls for participation at all levels of the TV market, including entry level devices, but initially its strategy is to drive added value at premium price points. It seems that Intel is finally getting grips with the consumer electronics market after many failed attempts over the years. David Mercer Client Reading: Connected CE Devices: Global Market Forecast and Outlook

The "Three Screen Convergence" concept has been getting buzz for years in the telecom and media industry. While all the three screens are important elements in our daily lives now, the TV screen is still quite different from the other two screens - the mobile phone screen and the computer screen. We've all witnessed the abundance of software running on our computers and the exuberance of emerging mobile apps driven by iPhone. But little technological change has happened in the TV industry for decades, merely getting bigger screens and higher resolution. But the trend of connecting Laptops to TV sets has been heating up, with some industry researches showing that about 70% - 80% US Internet users would like to connect their computers to the TVs. Now rumors suggest that technology giants, such as Google, Intel and Sony, are gearing up for an early entry in the TV market. As an open platform advocate, Google's Android OS is getting some momentum and its Chrome OS for computer is supposed to be released this year. So is Google going to launch an OS for TV? It remains unclear whether the platform will work on a set-top-box, on a traditional computer or be embedded in the TV sets, but it is highly likely that Google will do something in the lucrative $378 billion TV market, given the common belief that all TV content will be delivered through IP protocol in the future. I would not be surprised if Google simply modifies Chrome OS to fit in the TV environment, making TV as an extension of your computer at home. No matter how the TV OS is going to be structured, it is vital for the success of the TV OS to have robust apps supporting it. There is no doubt that TV apps will take off quickly once an open TV platform is out in the market, as evidence can be found from the skyrocketing of iPhone apps. "Three Screen Convergence" would be more realistic after we have similar experience on all the three screens. I can't envision how Google will play out in the TV market given so many uncertainties, but if they can successfully implement their strategy, the extended search presence in TV market would lead Google to a rejuvenation of explosive growth. Meanwhile, the new TV platform could be a disruptive force for the traditional cable industry who merely serves as a pipe for delivering TV content. I'm pretty sure that a new TV era is dawning very soon, and my next question will be - Where can I download the Doodle Jump app to my TV? Jia Wu Client Reading: Global Audiovisual Market Forecast

One of the biggest ever live Internet sports events passed off (for this viewer at least) without major technial hitches this evening as the World Cup qualifier between Ukraine and England was streamed live to hundreds of thousands of viewers in the UK. Each paid upwards of £4.99 to watch the game, which was not available through any other broadcast platform. For the record, Ukraine beat England 1-0 to keep alive their hopes of joining England at the World Cup Finals next year in South Africa. My own live internet TV experience was based on a ~3Mbps BT connnection, a WiFi link to the BT Homehub, using a HPElitebook 6930p laptop with an Intel Core2 Duo 2.4GHz processor and 2GB of RAM. After resolving an initial freezing problem by disabling hardware acceleration in the Flash player I was able to watch the entire broadcast in the high quality mode with no freezing or picture breaks. I would describe video quality as close to a poor quality standard definition live football broadcast on Sky, something which major UK broadcaster ITV is well known for. One way I gauge quality is to judge how easy it is to see the numbers on the back of the players’ shirts from a distant, half-pitch shot. In live Sky SD broadcasts this is relatively easy; in live broadcast ITV games it is almost impossible, and Perform’s internet broadcast was close to this level. But the overall experience was acceptable on a 15” PC screen. I imagine it would be less so for those who connected to a large screen TV. We will know more about the commercial success of the venture once Perform and Kantaro announce subscriber numbers, which they have promised to do. They have confirmed technically that live internet sports can be delivered to mass market audiences. But with each viewer paying a minimum of £4.99, the experience had to come as close to pay TV quality as possible. Even though our experience was good, we will watch with interest for any other reports of dissatisfaction from paying customers. While internet broadcast technology is becoming more reliable, it is still by no means clear that pay-per-view sports is a viable business model, on any platform. NTL famously failed to make a business from pay-per-view football in the UK, although many believe they vastly overpaid for rights in the first place. The internet may be proven technically as a delivery platform, but the questions around willingness to pay, appropriate price points, and the profitability of this platform remain very much unanswered. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

If 3D TV is to become a reality the question of programme guides and other data overlays needs to be resolved. Today’s interfaces are designed for the old world of 2D video, and as soon as they are overlaid on 3D video something starts to look very wrong. NDS demonstrated a couple of solutions to this problem at IBC today. The first used the firm’s “Snowflake” programme guide. During playback of a 3D movie, if the guide is selected, the movie switches to 2D mode and the guide is presented in the foreground, so appearing to “float” in front of the TV screen. Another example illustrated a VOD selection menu in the foreground, against a 2D movie background, with certain titles “raised” above others. NDS also demonstrated a method of integrating subtitles over 3D video, so that each subtitle was linked to the appropriate depth of the relevant content. For example, if a character was moving “towards” the viewer, the subtitle can be linked to the correct depth. The more advanced demonstration actually overlaid a 3D EPG on top of a 3D movie. This clearly takes some careful planning, because any mixing of the guide data with the depth of the movie would create confusion. So the guide is allocated a certain depth in front of the screen, while the movie is positioned behind, with a clear “depth boundary” between the two. The guide must also feature only solid graphics, since any transparency again would lead to visual distortion. NDS was running this last demonstration from a PC, and it featured upscaled 2*1080p 3D video: today’s set-top boxes are not powerful enough for these data processing requirements. But NDS believes that next generation chips from Intel will support these capabilities. Join Strategy Analytics and D. I. S. Consulting at IBC: Complimentary Analyst Presentations Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

Nokia’s annual development showcase is taking place this week in Stuttgart, conveniently placed, for the 2000+ international visitors, adjacent to Stuttgart airport, which is not nearly as bad as it sounds. After a day of analyst meetings we spent today listening to senior executives outline the company’s future plans and examining its latest device and service offerings. A major highlight was the unveiling of the recently announced Booklet 3G, Nokia’s first foray into non-handheld devices. Actually that’s not quite true, but you have to be an industry veteran of at least 20 years’ standing to remember when Nokia last manufactured PCs, or indeed the myriad of other products it used to be known for. It abandoned most of its traditional businesses as part of its rationalisation response to the Russian economic crisis of the early 1990s, and after it identifed mobile phones as the next technology wave the company has never looked back. Nokia’s explanation for (re)entering the PC space is that convergence is happening and is here to stay. In other words, it sees computing competitors (read Apple, Google) eating into its phone business, as phone handsets take on more and more of the capabilities associated with the PC. The logic is that Nokia can counter these threats by bringing its communications expertise to the PC space. The Booklet 3G is Nokia’s first response. I hope it is not their last. We could waste many hours discussing the finer points of English vocabulary, but this is indeed a “netbook”, at least as far as anyone can point to a clear definition of that word, and that may not be very far. It could also be a “laptop”, which is how John Hwang, who heads this new Nokia business, described it yesterday. Or to be precise, “a high end mini laptop”. So take your pick. It is, without doubt, a computer. From the various videos and demonstrations it seems that Nokia is trying to position the Booklet as a handheld device aimed clearly at portable applications. Promotional videos featured young, attractive (inevitably) people holding their Booklets in one hand while walking along streets, chatting idly with friends and surfing the web in attractive (inevitably) locations like ski resorts and wine bars. Actually I made that up, but you get the picture. For the record, the key features are Windows 7, 1.6GHz Intel Atom Z530 processor, 1GB RAM, 120GB HDD, claimed 12 hours battery life, 10.1” display, HDMI, GPS, accelerometer, Bluetooth, webcam. You may have spotted a couple of items which mark the device out from the usual netbook crowd. With GPS, accelerometer and 3G the Booklet is clearly designed to further strengthen Nokia’s position in the navigation and mobility applications segment. Retail price will be €575 plus tax. Nokia is confident (you can assume the deals are more or less done) that the Booklet will be heavily subsidised by mobile operators in return for the user’s long-term commitment to big fat monthly mobile data fees. The booklet is a nice-looking, well designed and high quality device. The to-ing and fro-ing around its categorisation is not coincidental, since its specification probably comes close to some low end notebooks/laptops. But prices for those start at €300 or less, while top end netbooks struggle to reach Nokia’s price point. As with Nokia’s phone business, it seems that close cooperation with operators will be necessary to ensure that Nokia’s return to the PC business is not a short-lived affair. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

I couldn’t help smiling at the latest euphemism for the world’s economic problems: “The economy and the industry are in the process of resetting to a new baseline”. If you didn’t know we were going through the world’s worst recession in living memory (if you’ve been alive for less than 80 years, at least), you could be forgiven for thinking things were ticking along quite nicely, and the captains of industry had got together in a little huddle and decided to redraw a few graphs, but there was really nothing much to worry about. Perhaps Intel CEO Paul Otellini's comment was meant to be taken ironically, though I rather doubt it. Quarterly results announcements are not normally a venue for dry humour. But we take every ray of sunshine we can get these days, especially in the midst of a cloudy, cold, damp British winter. So thanks, Paul, you’ve set us up nicely for the weekend. As thousands more people collect their redundancy cheques we can rest assured that as soon as you’ve reset your baseline “growth will resume” and everything will be back to normal. If only it really was a laughing matter. Twitter: www.twitter.com/dmercer15 Client Reading: IFA 2008: Internet and 3D Offer Hope During Europe's CE Recession

Macrovision is not a name many consumers will be familiar with, except perhaps those with a close interest in breaking content protection systems. Macrovision evolved as one of the early leaders in this market, and its technology is today deployed on 249 million TV set-top boxes and 12 billion DVDs. It also prevents the copying of many pay-per-view television programmes. Over the past year or so Macrovision has moved forward aggressively to reposition itself as a player in the wider content discovery business. Its major move was to acquire Gemstar-TV Guide in May last year, giving it a leadership position in TV guide technologies. We discussed Macrovision’s plans for the next wave of TV interfaces with Richard Bullwinkle, the company’s chief evangelist. Richard demonstrated the new Neon guide, which will include innovations that will bring greater power and personalisation to the interactive TV guide. Neon will allow viewers to see not just lists of TV programmes, but also what content is available on their home network devices as well as from the Internet. Where and when Neon gets deployed depends on CE manufacturers and service providers. But Macrovision clearly has a head start because of its TV Guide market leadership. And as Richard was keen to point out, competitors looking to develop internet TV applications that provide information about television programming should be aware that Macrovision has lots of intellectual property in this space. One issue which I debated with a number of players here at CES is the problem of tailoring TV and internet guides to multiple users within the household. While nobody expects TV users to “log on” before they can watch TV, the fact that Macrovision’s and other new services allow increased personalisation does beg the question: which member of the household has control as the “administrator”, and how easy will it be for younger household members in particular to override security restrictions. When content is being sourced from all over home networks and the Internet this is likely to become an increasingly vital question and it didn’t seem to me that anyone at CES has really solved this one yet. Client Reading: Digital Media Devices Global Market Report