Live televised football games don’t come much bigger than the top two teams in the English Premier League facing off at 8pm on a Monday night. Sky’s over-the-top TV service, Now TV, chose this game to offer 5000 free day passes (normal price £9.99) as a promotional tool.

I settled down at 7.45 having claimed my free voucher earlier in the day, with some very friendly assistance from Now TV’s online chat service (I had tried to use the voucher via the Xbox app but it wasn’t enabled so I was charged the full amount – I have been offered a refund).

Initially video quality was surprisingly good (I had heard that video quality on the recent Now TV Sky Sports trial was not entirely satisfactory). The main problem tonight was lip sync: audio was running ahead of video markedly for both studio and advertising material. But that’s not a problem you’ll notice for live sports so everything was looking good…

… until 7.55pm when my Xbox app shut down the video and presented an error message. After several attempts to restart the service the error message kept appearing. Checks at www.xbox.com/status suggested Xbox had resolved earlier problems at 7.35pm with Now TV but clearly that wasn’t the case. That message had disappeared by 8.30pm and Xbox claimed the Now TV app is “up and running”. I supposed that is true because the app opens. It just won’t run any video.

Checking Twitter it appears Now TV acknowledged problems specific to the Xbox app which they have tried to resolve. But there is a steady stream of complaints from Now TV users about the service failing, on multiple devices, including users who have paid £9.99 for the service and are demanding refunds. There are also reports that users of other Now TV channels (eg movies) are seeing a deterioration in service.

At 8.43pm Now TV’s Community Manager posted the following comment on the community notice board:

“We’re really sorry, but we have been experiencing some issues this evening which will obviously have impacted your viewing of NOW TV.

“As a result, we’ll be issuing a full refund tomorrow to all customers who had an active Sky Sports Day Pass during this time, and will email you to confirm this has happened.

“For those of you using a free pass, we will be contacting you with another free pass for you to use at any time.”

As I write at 9pm the stream of complaints on Twitter continues. This looks like being a major publicity disaster for Sky’s Now TV service. I will try to get official explanation of events in the morning. In the meantime this fiasco is confirmation that OTT TV is a long way from prime time when it comes to live sports, which was always going to be the most challenging genre, even when major powerhouses like BSkyB are behind it.

David Mercer

The UK’s Freesat digital television service provider begins its television advertising campaign today for its new hybrid broadband/broadcast TV service, “Freetime”. We’re supposed to write this as <free time> so don’t blame me if it looks like my fingers have slipped on the keyboard.

I’ve been lucky enough to have been using the newly launched <free time> service for the past couple of weeks, courtesy of a new Humax <free time> HDR-1000S set-top box. The “hybrid” part means that the Freesat EPG integrates the OTT catch-up TV services from providers like the BBC, ITV and (coming shortly) Channel 4 and Five. In practice this means that the user can search backwards in time through the EPG, find a programme which was broadcast (in that traditional, legacy sense of the word) at some previous point, select the programme and watch it, more or less instantly.

From an end user perspective this should mean that the EPG becomes a gateway to online TV apps and services without the user even having to think about it. And in practice <free time> comes pretty close to delivering on that promise. At the moment only the BBC and ITV channels can make use of the hybrid capabilities; in those cases the user simply selects the left cursor on the remote control to surf backwards through the programme schedule. Selecting a programme which is available online (which the vast majority appear to be) takes the viewer automatically to the online player app, and to the specific show selected, and starts the show playing. There are inevitably a few pauses along the way, since however fast the broadband connection there is a fair amount of processing going on. But typically I have found that shows start within 30 seconds or so. That’s not bad when you appreciate what technology is involved in getting this to work, although perhaps typical users might wonder initially whether there is a problem with the service. Humax might want to think about showing some sort of “please wait” message while all this is going on.

Freesat is also planning to launch second screen apps to allow remote EPG control and content shifting. That's something I'm really looking forward to.

All in all, it’s an impressive effort and watching catch-up TV soon becomes second nature to watching regular live broadcast TV channels using the EPG. Unfortunately I have to report a couple of issues. Initially my ITV Player was simply failing to load, although this now appears to have been resolved. Secondly, I have found that the box does not appear to be caching enough content to allow for smooth playback. My set-top box is connected to a 4Mbps broadband connection and other devices using the same connection successfully stream both SD and HD content from the BBC’s iPlayer. Eventually I found a a solution: pausing the catch-up show for 30 seconds or so appears to load the buffer sufficiently that it then plays smoothly without further interruption. I have asked Humax for feedback and am awaiting comment.

The other aspect to <free time> is the ability to market television shows via the EPG. The “Don’t Miss” feature essentially advertises TV shows already broadcast and allows the viewer to watch them instantly. I have found this surprisingly compelling, given that I am not particularly open to searching for TV shows I am not familiar with. Perhaps the novelty factor will wear off, but this is potentially a rich seam of innovation and source of additional eyeballs which the BBC and other free-to-air broadcasters will want to mine.

According to Strategy Analytics research, opposition to pay TV has grown significantly in the UK in the past two years. We’ve seen a 13% net rise in the number of people who believe all TV should be free and supported by advertising or public funding. <free time> will go some way to ensuring that free digital satellite TV remains competitive against hybrid service offerings from Sky, Virgin Media and BT.

David Mercer

Finally, if you’re thinking this all sounds eerily familiar, you probably have in mind the Youview service from Freeview, the rival UK digital terrestrial TV platform, which does pretty much the same things, albeit using a very different technical platform. But Iwon’t bore you with those issues today, strategically significant as they are. Just sit back, select your show and enjoy. TV schedules just entered the digital age.

Client Reading: Attitudes to TV Business Models: Opposition To Pay TV Is Growing

If the television industry is going to get swept up in the apps hype wave there is little sign of it at this week's Appsworld event in London. There were hardly any stands demonstrating apps aimed at smart TV viewers, Accedo being a notable exception. And the dedicated TV apps conference track has focused on the many barriers which stand in the way of this emerging market while bemoaning the absence of any major revenue generation opportunities.

Accedo`s Michael Lanz did his best to drum up some enthusiasm for the TV apps business, claiming that he can already make business cases for ad-supported apps, if only in the larger smart TV markets. At the same time he admitted that "TV apps payment platforms are a mess right now. I haven't been able to make one payment using my smart TV and this is my business." Partly because one-time payment mechanisms are so user-unfriendly he believes that the TV apps business will be driven almost entirely by ad- and subscription-driven business models. That sounds a lot like how the TV industry works today, and Lanz's argument makes sense: television's industry structure will encourage entrants to adapt to its way of doing things.

The other key theme has been openness and standards, and we have heard the usual complaints that most developers will never be able to support smart TV until today's fragmented market evolves into one where one or two platforms are dominant. Unless, that is, you are the BBC, which has hundreds of developers making sure that iPlayer is available on 400 different connected devices. The BBC is now promising that the red button will evolve into a connected TV service, so that viewers will connect directly to the channel's respective online service by selecting the familiar red button on their TV remote control. Eventually the BBC will offer multiscreen red button services, so that smartphones and tablets will detect if the viewer is watching TV and synchronise content.

The most valuable contribution so far has come from Facebook's Karla Geci, Strategic Partner Development Director. In response to my question about advertising opportunities, she noted that multiscreen was allowing advertisers to become better storytellers. This is precisely what needs to happen - the active involvement and drive from the creative community - if multiscreen and smart TV technologies are not to be consigned as distant memories like so many other advanced TV technologies over the past decade or so.

David Mercer

Sky is launching NOW TV:

• To extend Sky’s reach to consumers unwilling to commit to a pay TV subscription: currently 11m UK households do not have pay TV

• As a defensive measure against the proliferation of OTT video and TV services in the UK market such as Netflix and Lovefilm which have proven particularly adept at making themselves available via a growing range of connectable devices

• Because it is a low risk strategy: launch marketing spend will be significant however NOW TV is using the same content rights, distribution technology, sales and customer service infrastructure which underpins Sky TV and Sky Go. NOW TV offers a way to increase ROI on investments the group would be making anyway.
  

Sky’s growth is slowing while competition is intensifying

Sky’s core pay TV business is slowing and limited growth potential remains in untapped households and in increasing ARPU of existing subscribers through upselling additional content and services. Competition is intensifying from Virgin Media and a rush of enthusiastic OTT specialists targeting a rapidly growing addressable market of IP connectable devices. Sky’s strategy of increasing the value proposition of the pay TV subscription has served it well for many years however it is not the ideal tool in a fragmenting environment in which consumers want more flexibility across more devices.

NOW TV diversifies Sky’s competitive arsenal

NOW TV is Sky’s vehicle to break out of the constraints of pay TV subscriptions increasing growth potential following two of the slowest quarters in Sky’s history for net subscriber additions (only 15k in Q1 2012). NOW TV will augment Sky’s existing standalone OTT service Sky Go and enables a greater degree of market segmentation without eroding the premium positioning of the Sky brand. It is also a recognition of the viability of a fast growing addressable market of connectable devices in the UK and the increasing traction of alternative content charging models in particular short-term subscription and transactional VOD. Given the emergence of Netflix in the movie space, multiple online catch-up services from UK terrestrial broadcasters, growing spending on transactional platforms like iTunes and Blinkbox and ongoing high usage of illegal online streaming providers, Sky’s strategy acknowledges the reality that there are plenty of competitors ready to grab their share of audience consumption on IP-delivered services if they do nothing.

NOW TV will target devices which would otherwise erode Sky’s share of the audience: platforms which were once threats become opportunities. NOW TV will target connected TVs, games consoles as well as the rapidly growing tablet market. We believe that the number of connected TVs, consoles and tablets in the UK will double to over 26m in 2015 from 13m at the end of 2011. Sky will leverage the expertise it has developed in offering multiscreen and out-of-home distribution to existing pay TV customers, the connected TV expertise of the recently acquired Acetrax as well as a formidable content arsenal in evolving NOW TV.

NOW TV can even target homes which subscribe to competing pay TV services by distributing content through connected TVs, consoles or tablets. It will be interesting to see if Sky could convince customers to acquire their content directly via NOW TV rather than subscribing to Sky channels via a competing pay TV service provider: will consumers prefer to add a Sky channel accessible only via their STB rather than through NOW TV which will be accessible through connected TVs, consoles, smartphones and tablets?

Will NOW TV succeed?

The appeal of NOW TV is greatest in sports and movies where Sky’s content rights differentiate it from other OTT services: Sky enjoys a lock on FSPTW movie rights across all six Hollywood majors and the broadest collection of UK sports rights including Premiership and Champion’s League football, F1 and Test Cricket. Illegal sports streams are widely available online (especially for football) and Sky will look to monetise as much of this audience as possible through TVOD matches on NOW TV. Entertainment will be a tougher proposition given the strength of terrestrial broadcaster catch-up services in the UK lead by BBC’s iPlayer however Sky’s content rights to US programming again constitute a significant point of differentiation from the rest of the market.

However NOW TV is entering a relatively small market by pay TV standards:in 2011 the UK OTT TV and Video market was worth less than $395m and is likely to grow around 30 per cent in 2012 to top half a billion dollars by year-end. While we expect NOW TV to be a significant overall market driver for OTT distribution in 2012 and beyond it will be some time before NOW TV revenues significantly impact Sky’s overall revenues. If NOW TV can break 100k subscriptions by the end of 2012 and has started the arduous process of converting the illegal sports streaming audience to the paid option, it will be performing well.

The imminent release of Google’s first digital media adapator (DMA) in the Nexus Q, the first Google tablet in the Nexus 7 alongside improvements in the Google Play application and content delivery platform signal a step change in the wider war to establish the most desirable super-platform ecosystem marrying content, devices and cloud-based content storage and distribution. Apple has long held a seemingly unassailable lead with a high end, intensely focussed and design-led approach which has driven the most successful device sales strategy in business history. With the latest building blocks in Google’s ecosystem there is at last a danger that Apple will face some meaningful competition.

Previously Google relied on other device manufacturers for Android-based tablets and devices addressing the main screen in the household: Amazon riffed on the OS to create the Kindle platform, Samsung and others commoditised the Android-tablet experience into something meaningless and barely distinguishable from the others while Google TV has suffered the indignity of a relaunch. Although Asus is manufacturing the Nexus 7 the hardware and software is controlled by Google (similar to the dynamic with Samsung manufacturing Google’ handsets). In addition Google TV’s reception, sales and industry impact (crucial for driving interest from App developers and content owners) have been way below the levels a company of Google’ standing should routinely demand. Taking tighter control of the reins of the hardware aspect of their ecosystem is an acknowledgment that a single entity has to control all the components of the platform (software, hardware, content, distribution) in order to compete with Apple’s blue riband experience. Microsoft’s entry into the tablet manufacturing reflects the Redmond giants’ recognition of this reality.

To make an ecosystem meaningful, the progenitor has to reward customers for owning, buying and using multiple aspects  it. Again the benchmark is Apple which has expertly leveraged multiple aspects of its ecosystem to feather, embellish and improve the functionality of Apple devices, iOS, iTunes and iCloud in its now characteristic and seamless manner. Google is now trying to ensure inhabitants of its ecosystem will start enjoying similar benefits:

• Google Play, Google’s App and content store and the default content retailer for Google devices has been improved. Movies may now be purchased (previously TVOD only) and TV content has been added. Heavyweight content owners partnering Google Play include NBC Universal, Sony Pictures, Disney, Bravo, Paramount, Virgil Films, and Sundance. Electronic magazine subscriptions have been added to the store with Conde Nast and Hearst the first announced partners. Currently this US only but a territorial rollout is a given.
  

• the digital media adaptor Nexus Q plugs into a TV and enables owners of Android-based handsets and tablets to stream music and video. Intriguingly Nexus Q will download and stream a separate copy of the media itself – this is different to Apple’s Airplay where the content is streamed from an iPad or iPhone to Apple TV for playback on the main screen. It begs the question whether the functionality works for media not acquired from Google Play.

• ecosystem inhabitants who store their digital media in Google’s cloud have another two devices controlled by Google to browse, buy, store and stream media to including, crucially, one targeting the main screen in a household. Google’s ownership of the media locker, hardware and OS should reassure the market that investments made in acquiring and storing content on the platform will be safe for the long term: there are no other companies in the ecosystem whose commercial priorities will diverge from Google’s cf, Ultraviolet, Samsung, Nokia.

However issues which need addressing for Google’s strategy to thrive include:

• How aware is the audience of the cloud-based storage and distribution functionality offered by the major platforms? Do customers even care about cloud-based media storage and distribution and to what extent does it drive content sales? These remain largely unresolved questions which the digital media team at SA will address in the next digital consumer survey. It is seemingly a given that easy access to content (both purchased and, crucially, owned content including pirated content) adds to the value proposition of a device which is why this is becoming a key pillar of device and content ecosystem strategies. Apple’s approach has been to drive iCloud usage for personal data as an unobtrusive way of backing up personal data and photos in what looks like a Trojan horse to drive eventual usage for content. With 125m users of iCloud announced at WWDC Apple has made a flying start. Content rights deals for full cloud-based storage and distribution are still an issue and may hamper territorial rollout.

• The pricing for Nexus Q is too high at $299 when an Apple TV is $99: the device does not exist in a bubble and the value proposition is simply not competitive at $299 against what is close to impulse purchase pricing. And at some point Apple will raise the bar for targeting the main screen (starting with Airplay Mirroring): Google should have aimed at surpassing the Apple TV rather than catching up with it, which it has failed to achieve anyway.

• While the presumably not huge constituency of existing Android handset and tablet owners who want a DMA will be pleased, Google has limited the sales potential of Nexus Q by requiring ownership of an Android device for basic functionality.

• The dearth of other content options apart from Google Play and Youtube is an absurdity we can only assume will be addressed shortly. Third party services with significant audiences who will expect their connected living room devices to enable access in the US include Netflix, Hulu, and Pandora amongst many others. Availability of the most common content streaming services has become a negative differentiator for connected devices.
  

• The absence of any mention of Google TV is puzzling: using Nexus Q to deliver Google TV to non-enabled TVs seems like a natural fit. Perhaps this is how the product will evolve.

At this point it is worth asking what the endgame is for each of the ecosystem progenitors. It used to be so simple: Apple did all this to sell devices, Google to sell advertising, Microsoft to sell software, Amazon to drive retail sales. While worrying about giants such as these generally calls for us to pull out our smallest violins, the prospects for more specialist companies looks bleaker in a world of tightly controlled ecosystems. Specialists like Nintendo risk being forced into ever shrinking niches: will we ever see Wii and DS level volumes again? Nokia’s trajectory is firmly established while ecosystem evolution lags at Sony, Samsung and LG however at least the jury is still in discussion. Telco’s risk being forced into their long dreaded fate of providing the dumb pipes delivering the value which drives someone else’s profitability.

And with increasing complexity and multiplying commercial imperatives for each component of an ecosystem the route to the consumer becomes ever more complex and circuitous for content owners: rights deals today bear no resemblance to a much simpler world of content distribution even five years ago. Content owners must avoid commoditisation in such an environment as the music industry discovered long ago and undifferentiated news providers are discovering today: fungibility is death for content. Movie and TV content owners are fighting the good fight by creating artificial scarcity through windowing and controlled broadcast distribution networks and while the model is under pressure at the margins, the core remains rock solid, built upon the love only hundreds of billions of dollars of box office, DVD, retrans and advertising revenue can confer.

Standalone content providers will be marginalised, the role of device vendors will be diminished, and entry barriers will be raised to “historically unimaginable levels” according to our 2012 Predictions report, which is now available for complimentary download. According to my colleague, Ed Barton: “Now it is no longer enough to ‘just’ be a multibillion dollar market leader to play this game: bring an addressable market of more than a hundred million devices, global territorial coverage, tier one content relationships across all entertainment formats and tens of billions of dollars to invest over the next decade, or go home.”

The report also addresses Apple’s iTV, Smart TV platforms, second screen apps, broadband speeds, Android@Home, Amazon’s tablet strategy, voice control, new wireless home technologies, the next generation of games console platforms, and the multiscreen impact of the London Olympics.

Enjoy the report. We welcome feedback and wish everyone a peaceful and relaxing holiday.

David Mercer

Back in December 2010 I spoke with Anthony Rose the day before his departure from the BBC. Less than a year later Rose is preparing to launch his latest venture: Zeebox, which has attracted $7m in funding. He gave last week’s Informa IP Cable World Summit a heads-up on what Zeebox would be bringing to the market.

Zeebox is a free application which (eventually) will reside on tablets, smartphones or PCs. The iPad version launches in early November. Zeebox is a TV guide for the social network age. It allows users to see what their friends are watching at any given moment, and switch to that programme instantly on the TV set by selecting an option in the application on the personal device. People can also get real-time statistics on what is being watched, which shows are most popular, and chat in real time about live shows.

Part of the magic is in the application’s ability to tell the personal device, via the DLNA-enabled home network, to switch HDMI inputs on the connected TV if required, and then to select the appropriate channel and programme seamlessly from within the application. The service also works with DLNA-enabled set-top boxes, although these are not as commonplace just yet.

The Zeebox service also incorporates metadata and content recognition technologies which allow the app to understand what is being watched on the big screen at any given moment, and to incorporate relevant material on the personal device. Zeebox hopes to patent this technology: content recognition is a hot area being pursued by a number of emerging players such as Civolution.

Zeebox is initially aimed at the Europe-centric free (ad-funded and public service) TV market, so Amercians might think it has little relevance in that market. Its functionalities are dependent on open standards and APIs, and on the presence of DLNA in connected devices. Specifically Rose claims that the first implementations will be compatible with Samsung, Sony, LG and Panasonic 2011, and some 2010, TV models.

Rose claims that pay TV operators need not be left out of the opportunity: they could enable their devices with DLNA, and they could use Zeebox to drive viewers towards pay services. It was clear from Rose’s answer, however, that this is very much a secondary objective in the early stages.

So one of the key questions for Zeebox is how many people are actually using the connected TVs on which the success of his service greatly depends. Well, according to our own research released this week (to which Rose was kind enough to refer in his speech), 10% of European homes are accessing video content via the internet on their TV screens. But only 3% are using a connected TV: the remainder are using games consoles, PCs via HDMI and various other solutions.

This is sure to change as this emerging market rapidly evolves; but it may be a stretch to assume, as Zeebox appears to, that connected TV users are actually connecting their TV set, strange as that may seem. So Zeebox could end up playing a key role in the all-important customer education process which needs to take place before its full market potential can be reached.

David Mercer

Client Reading: Multiscreen Connected TV: Assessing Device Usage and Ownership

As the media industry gears up for another long weekend of back-to-back trade meetings at Amsterdam's IBC, a number of vendors have held analyst pre-briefings, perhaps recognising the challenge of finding time and any space, never mind a quiet space, to discuss things during the show itself.

Last week Netgem, the France-based IPTV set-top box developer, introduced its key theme for this year’s event, and managed to put yet another gloss on the buzzword of the moment, the ubiquitous “cloud”. I thought we had heard most of the possible explanations for what this cloud thing really is, and they have all revolved around some element of online access to remote servers in datacenters. The “cloud” is, very loosely, anything “out there”, ie remote from the individual user and his devices.

Netgem has now taken the concept a step further by bringing the cloud home. Instead of users storing content and accessing services and apps on servers in some distant, unknown location, Netgem proposes that network operators deploy home media servers as the “central points of the cloud”.

Netgem’s solution, nCloud, incorporates three key elements: the home media server, a software platform, and social TV applications.The nCloud media server takes a modular approach and could, depending on operator requirements, incorporate a Blu-ray Disc Live player, video conferencing devices (camera, microphone), NAS (network-attached storage), networked games and the access modem/gateway. The software platform comprises content from live television broadcasts, on-demand sources and personal content libraries.

Connected devices, including smartphones, tablets and PCs, would access content and apps, whatever the source, via the home media server, meaning that there is no need for the network operator to budget for datacenters. I was able to use an iPad to watch live broadcast TV received by the nCloud home media server and streamed directly to the tablet. Netgem calculates that operators will save money over time by deploying more advanced media server boxes in homes instead of moving their systems towards the “cloud” model.

Netgem admits that the media server will require a “big chip”, but estimates that the media server might be deployed at a premium of only 20% compared to an existing set-top box. Netgem works with both Broadcom and Intel, although it accepts that some service provider customers are still not confident with the Intel solution.

The whole thin v. thick, client v. server debate has energised the IT industry for as long as anyone can remember. It’s now enveloping the television and media segments, and there’s no question that service providers are seriously considering the long-term feasibility of “cloud” or server approaches replacing their traditional home-installed hardware-based models.

The widespread availability of fast, reliable broadband connections and connected devices is the catalyst for this potential living room revolution. But just because content can be stored anywhere doesn’t mean it necessarily should be. For a start it’s an issue of great concern to content owners themselves (and their lawyers). Content business models have been built for many years (without much reason for question or debate) on exactly where a particular “piece of content” is stored and who can “access” it. Those business models are being disrupted by concepts like cloud and connected devices.

There is also a shift in the economic debate for operators: they have wrestled for a decade or more with the relative viability or otherwise of “VOD” (ie television and movies in the cloud...) and DVRs (ie television stored in the home). In terms of market penetration, usage and media consumption impact there is no question that DVRs have had the greater impact to date.

Netgem’s home-cloud approach reignites the debate about the role of the set-top box as a key component in the connected home. In the end operators will make decisions based on their own economics as to whether a “thick client” has any role in the world of cloud content and services. Those decisions are likely to vary based on individual circumstances and local market environments but we see no sign yet of any overriding trend in one direction or another.

However the future of content storage and access pans out, Netgem’s move makes the whole cloud debate just a little but more, er, cloudy.

David Mercer

Client Reading: 

Why Connected TV will completely reshape the television industry in the next 10 years

I know a lot of folks out there are furious about the dramatic price rise of Netflix services. As a user, I'm in the same shoes. Nobody wants to pay more and not receive more. A lot of people argue that Netflix is making a wrong move, as this can terribly hurt their relationship with the loyal customers and could result in many consumers cancelling the service and leaving the company financially hurt. 

But I believe the move has long-term strategic importance to the company. Plus, in the short term they could end up making more and cost less with fewer subscribers. The original price of the most common plan is 1 DVD at a time + streaming, which cost $9($8.99) per month. Now the price for the equivalent service combination goes up to $8 ($7.99 for streaming) + $10 $8 ($7.99 for 1 DVD) = $16 per month. This is a 100% 78% rise in price. Then Netflix loses $1 per subscriber for those who cancel the DVD service. But they will make $7 more on those who stick with the price rise. While I usually don't like to use our competitors' data, TDG group is doing a good job this time by releasing a timely figure that 44% of dual-service Netflix users are likely to cancel DVD and go with streaming only. If we assume this figure goes up to 50%, Netflix will lose $1 per month from 50% of its existing customers, but gain $9 $7 from the other 50% subscribers. In the end, they will make $8 $6 more from 50% of their users, which is $4 $3 more per user at large. On the other hand, the cost for delivering DVD content to 50% of their users is saved. 

In the long run, Netflix is trying to push the trend of online video streaming. As one of the biggest concerns for the company is the rising content cost, Netflix faces tremendous challenges when they try to strike deals with content owners, who argue that their biggest revenue source is still from selling DVDs. Therefore, it is in Netflix's best interest to accelerate the transformation of content from physical format to digital, as they are the predominant player in the online video streaming space. If DVD or Blu-ray disappered, content owners would have much less options when it comes to content distribution. In this case, Netflix would be in a better position in negotiations and could potentially reduce their content acquisition cost and get more new titles into their library. The price rise does exactly this, as consumers go with the streaming-only service in favor of the DVD service. Streaming is Netflix's lifeblood, and it can get better content deal when streaming prevails. 

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