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

This morning Sky announced that it is to launch Sky Songs, an online music service offering access to over four million tracks for download and unlimited streaming. Sky Songs will come in two versions:

• Pay £6.49 and download either a £6.49 album or 10 songs, and receive unlimited access to listen to over four million songs online for one month; or
• Pay £7.99 and download either a £7.99 album or 15 songs, and receive unlimited access to listen to over four million songs online for one month.

Thus, Sky Songs is not so much an unlimited music service as a bulk purchasing offer to consumers. Additionally, while 4 million tracks may sound like an impressive music catalogue, it should be compared to the more than 11 million tracks iTunes offer for purchase and the more than 6 million tracks Spotify offers on its service. From a financial point of view, the music market is unlikely to be a top priority for Sky. According to Strategy Analytics’ latest estimate the entire digital music market in the UK (online & mobile) will generate approximately £300 million in retail revenues in 2009 and represent about 24% of the total UK music market (up from £210 million and 16% in 2008). In comparison Sky’s total revenue in its last financial year was £5.3 billion.  Thus, Sky may, to some extent, be excused for launching an uncharacteristically lacklustre service that ads little of value to consumers. We believe that the Sky Songs service is unlikely to become a success for Sky for numerous reasons but among the chief ones are: 

• The download part of the service adds very little value compared to a traditional a-la-carte service such as e.g. iTunes. In fact, it can be argued that it offers less value than iTunes since it locks consumers into paying for a minimum of 10 downloads every month and the music catalogue is only about a third of that of iTunes
• The streaming part of the service does not offer (as far as we understand) the ability to play playlists in an offline mode or the ability to stream to portable devices and again the available catalogue is significantly smaller than that of free streaming services such as e.g. Spotify
• Sky has not opted to bundle Sky Songs with any of its other services and thus aren’t able to leverage its significant user base to any meaningful extent.

Meanwhile, the much hyped music streaming service Spotify announced last week that it has signed a 2 year deal with Swedish incumbent telecom provider Telia “…to work together developing Spotify's music service for computers, mobile phones and eventually TV as well”. We believe that Spotify is looking to sign similar deals in the UK market which would offer consumers unlimited access to a much bigger catalogue of music, with playlists that can be played offline and are portable across multiple device categories.  Thus we believe that Sky Songs is unlikely to become a success for Sky in its current incarnation and other digital music services such as iTunes, Spotify and Nokia Comes-with-Music have little to fear from this newcomer in the UK online music market.

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