Digital Media Strategies

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

December 22, 2010 16:12 dmercer

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 Add to Technorati Favorites


November 4, 2010 12:11 dmercer
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 Add to Technorati Favorites

March 5, 2010 20:03 dmercer
As promised, a quick preview of our games console forecast which will be published early next week. No surprise that Nintendo’s Wii stands in the lead at the moment, within the current generation of systems, in terms of global installed base. We estimate that there will be nearly 76 million Wiis in use worldwide by the end of 2010. But the signs are that the Wii has peaked in terms of console sales, and its installed base will begin to decline after 2011. Meanwhile, Sony’s PS3 and Microsoft’s Xbox 360 will continue to grow, so that the PS3 will become the largest platform globally by 2013. In terms of cumulative lifetime sales we expect the PS3 to hit 127 million units, compared to 103 million Wiis. These estimates are derived from our core forecast scenario, but we have developed various scenarios for each platform. Uncertainties clearly surround each of the major platforms, particularly relating to the new services and upgrades planned by Sony and Microsoft. Natal on the Xbox could be more beneficial to 360 sales than expected, and Sony’s own motion controller, together with its plans to upgrade all PS3s to 3D capabilitiy, also represent potential for upside to our core forecasts. This year’s global market for consoles is likely to fall again, after a 6% decline last year. For 2010 we are predicting global console sales of 47.5 million, a 9% decline.The Wii will account for most of that decline: sales of the PS3 and Xbox 360 are predicted to increase. David Mercer Client Reading: Global Video Game Market Forecast Add to Technorati Favorites

February 4, 2010 18:02 dmercer
We met with Sony Playstation's senior European executives today for a performance update and to hear plans for 2010 and beyond. After what the company described as a challenging 2009 the PS3 nevertheless appears to be in a strong position as we enter 2010. I can't release any detailed European market data yet, but we will be publishing our own estimates and forecast for console sales very shortly. But the general global outlook for the current generation of home consoles appears to be clear. In terms of annual sales volumes Nintendo's Wii is entering a period of decline, although its global performance in 2009 held up well. The Xbox 360 has peaked in terms of annual sales, while sales of the PS3 are still on an upward trajectory. So while the PS3 still ranks third globally in terms of installed base, this situation may not last much longer. Much depends on assumptions about the longevity of these platforms. As we have always argued, the PS3 was designed with longest term vision in mind, and that is now being demonstrated by global sales patterns. However the uncertainty surrounds the impact of system upgrades such as Natal and Sony's motion controller. These are likely to give renewed impetus to both platforms. We'll release our conclusions together with market data projections in the next week or so. Client Reading: Consumer Imperatives for Digital TV Media Browsers Add to Technorati Favorites

August 18, 2009 19:08 dmercer
Sony has finally gone public with its new PS3 slim form factor, and confirmed rumours that this device will also take the console to new price points - $299 and €299. The new PS3 is more compact and consumes less power than the original form factor, and upgrades the HDD to 120GB. While the new PS3 will still command a premium over the Wii and the Xbox 360, it is now positioned much more realistically. Research clearly indicates that many potential PS3 buyers have been put off by the higher price points and, rather than waiting, have chosen one of the rival consoles instead. The risk for Sony is that those buyers will now resist adding a second console, especially against a tough economic background. But as we move towards the key fourth quarter selling period the PS3 is now much better positioned to compete for gift spending, however constrained that may be this year. The move may have come too late for many tastes, but Sony’s console is also now back on track to maintain its momentum and sustain its own console cycle for the next few years. It will still struggle to regain its former position of market leadership, indeed dominance, but it has many years left to expand its PS3 user base, while Nintendo’s Wii in particular already appears to have peaked. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report Add to Technorati Favorites

June 12, 2009 18:06 dmercer
We met with Xbox executives in London yesterday for a post-E3 briefing. Since few of us had been to E3 in person (relying instead on dodgy video streams) it was a valuable opportunity to make sure we hadn’t missed any of the key messages. As far as the EMEA business is concerned, Microsoft is putting forward a positive story for the 360 in 2009, relative to other console platforms. Without revealing the numbers, according to Microsoft the 360 continues to perform well in a challenging market environment. In general it seems that demand for Nintendo’s Wii console continues to fall, and there is some evidence that Wii owners are beginning to move to the competing systems as they grow bored with the Wii’s novelty factor. Apart from seeing video demonstrations of Natal, the new user control platform, we were also treated to a work-in-progress demo of the recently announced Sky-on-Xbox service. Many details have still to be finalised, and the demo did not use live internet connectivity but was stored locally. Nevertheless, it was clear that Sky Player and Sky TV could become an extremely attractive and easy-to-use service within the Xbox NXE interface. Within the Sky “portal”, viewers will flick around the various Sky options with the standard Xbox controller, using up/down and left/right movements to navigate the horizontal/vertical pathways. One vertical could be a selection of streamed Sky channels (News, Sports News, Arts etc), including mini windows showing live TV. Another vertical might take the viewer through various Sky Player on-demand options – movies, sports, TV shows etc. I can also easily imagine that something similar to the Sky+ PVR functionality will be added at some point, using the Xbox hard drive for storage. We also discussed the impending arrival of instant-on VOD and 1080p content. Contrary to my previous comments, it now seems that 1080p streaming will be available at speeds as low as 6Mbps, in contrast to the 10Mbps we were originally told. The uncertainty over this issue suggests that there is still a fair amount of work to be done before these services are launched commercially. But there is no question that, as the current generation of consoles hits maturity with the games audience they will add ever more capability as non-gaming devices in order to sustain the life cycle to the maximum. It will be very interesting to see how Sky and Xbox develop the marketing and positioning of the 360 console as the video and television services are rolled out later this year. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008 Add to Technorati Favorites

March 25, 2009 12:03 dmercer
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 Add to Technorati Favorites submit to reddit

February 15, 2009 20:02 dmercer
I’m here in Barcelona for my first visit to the Mobile World Congress. I feel a bit like the black sheep on a farm built to rear white sheep, given that my interests are focused on the digital home and media industries, but I’m here to look for evidence that that over-worked cliché, convergence, is a commercial reality. In other words, how soon, if ever, is the mobile phone going to become a platform for home-based multimedia services? And how seriously is the mobile industry considering this opportunity? Nokia has been showing TV-out capability on its Nseries multimedia computers for several years. But the company always seems strangely reluctant to make very much of this function. They’ve also been promising “DVD quality” video from handsets, but it never quite seems to make it to commercial launch. One challenge, if the mobile phone is going to become a competitive media platform, is the issue of user control. I can connect my handset to the big screen with a 2-metre wire, but how do I then control what’s on the big screen? Handset manufacturers need to get to grips with the 10 foot user experience, and that means tackling the issue of remote control devices. Zeemote has been doing some of that work for them, and its Bluetooth remote control/software package is now being bundled as standard with Nokia Nseries phones in the German market. Zeemote is planning to launch standalone remote controls compatible with Nokia Nseries devices later this year, priced at €39. The controllers are intended to make Ngage and other mobile phone games more acceptable on the big TV screen. They are much smaller than the traditional console-style controls, but perfectly acceptable and certainly an improvement on Nokia’s standard handset button controls. Zeemote can’t do anything about the graphics and video quality of phone-based media, so that’s something else we need to see improved, and I’m sure there will be plenty of evidence of progress on that front here at MWC. See also: Digital Experience at CES: Hillcrest Demos Kodak Media Player User Control and Interface Hillcrest sues Nintendo and wants Wii imports stopped Twitter: twitter.com/dmercer15 Complimentary Report: Digital Home Observatory: Pilot Study Add to Technorati Favorites submit to reddit

February 11, 2009 14:02 dmercer
Another of my confessions about underestimating the impact of new technologies: when I first saw demonstrations of Nintendo’s motion-sensitive controllers at E3 2006, as well as trying them myself, I was not convinced they would be anything more than a novelty or even a gimmick. It makes great television to watch people moving their arms around in front of the TV screen, and sure enough the Wii trounced its rivals in terms of press coverage and attendee feedback. But it wasn’t clear then, as it is now, that motion sensitive control would become so widely accepted and established in the video games industry. The Wii’s success has clearly demonstrated that some TV users at least are happy to adopt new interface technologies. It clearly works for games: but will people use similar devices to control TV programme guides or other big screen applications? Research from Strategy Analytics’ Digital Home Observatory suggests that there is indeed a positive attitude towards motion-sensitive, point-and-click approaches for media browser applications. In a survey of 500 US consumers, TV viewers identified point and click controllers such as Nintendo’s Wii Remote as the best type of control device for the next generation of TV-based media browsers. We found that PC-style keyboards ran a close second in popularity, followed by traditional TV remote controls using either on-screen keyboards or alphanumeric keypads. Voice control, which has often been talked about as the future of man-machine interface, was considered the least appropriate option by those surveyed. Perhaps it’s just that people have not yet seen a successful implementation of voice technology. After the surprising success of point-and-click, I would not rule out voice control making a breakthrough at some, probably distant, point in the future. See also: Digital Experience at CES: Hillcrest Demos Kodak Media Player User Control and Interface Hillcrest sues Nintendo and wants Wii imports stopped Twitter: twitter.com/dmercer15 Complimentary Report: Digital Home Observatory: Pilot Study Add to Technorati Favorites submit to reddit

January 9, 2009 07:01 dmercer
I spent some time last night at Pepcom’s Digital Experience press event. I find this one of the most useful sessions at CES. A wide mix of firms, from start-ups to major corporations, present a few of their new or yet-to-be-launched products. I was able to catch up with Hillcrest Labs, a firm I’ve covered previously, initially at CES a year ago. Hillcrest’s table featured a prominent notice detailing the background to their legal battle with Nintendo. It’s a subject that not surprisingly occupies a great deal of their spokesman’s time. In the meantime Hillcrest has been continuing to pursue partnerships with emerging digital media developers, and it was showing the new Kodak media player which has been built using Hillcrest’s navigation software and remote control technology. As I’ve previously said only the lawyers can resolve the Nintendo dispute. But having tried the Hillcrest control again last night, it became clear just how different it is from the Wii experience. I had assumed my inability to master Nintendo’s point and click devices was simply down to the usual generation gap: I haven’t found anyone born after 1990 who can’t use the Wii Remote perfectly easily, whereas I have found it almost impossible to master smooth, steady on-screen control. But I had no such problem with Hillcrest’s device, which feels much firmer and more precise. The company tells me that this does indeed reflect some of its key patents, which enable its control devices to compensate for the tinniest jitter that everyone displays in unsupported hand or arm movements. Only time will tell whether that's enough to help resolve the Nintendo dispute one way or the other. Client Reading: Digital Media Survey: An analysis of US Online Premium Video Users Add to Technorati Favorites