Digital Media Strategies

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

August 2, 2007 18:08 dmercer
Social networking is not just about the teenagers on Myspace and Facebook. Younger children are spending hours in online worlds like Club Penguin, as I can testify from personal experience. Club Penguin was set up by Canadian company New Horizon Interactive in 2005, and has just been acquired by Disney for $350m. It has 12 million activated users, 700,000 of which pay nearly $60 a year for the premium service (my daughter, or rather her parents, being one of them) - that's $50m in revenues from a measly kids' game site. Club Penguin is terrific. If I was nine years old again I don't see how Lego or Subbuteo would get a look-in. It can be nerve-wracking for adults to imagine that younger children are interacting in real time with other real people, but, inevitably, they think nothing of it, and happily explore the cartoon landscape making "friends" at the drop of a hat. One can only wonder at how the social skills of tomorrow's adults are changing relative to those of previous generations. Disney recognises Club Penguin as a safe-kid zone, and I've seen nothing in the game to dispute that. It's something many concerned parents are prepared to pay for, dreading the time when penguins become babyish and Facebook, or whatever next year's hot site is, takes over their children's lives. Add to Technorati Favorites

August 2, 2007 17:08 dmercer
James Cridland, the BBC's new Head of Future Media and Technology, Audio and Music, points out that Strategy Analytics' analyst forum at IBC , "Broadcast Under Threat" (complimentary registration...) should be titled "Television Under Threat", implying presumably that Radio is "broadcast" and has already been "under threat" for many years, and in fact has successfully evolved to meet that threat. You can read James' blog here. To be fair, he's also questioning why such events always concentrate on television and video, apparently ignoring the fact radio is in many ways ahead of the pack in adapting to the digital world. From a personal point of view, I have been a regular user of the BBC's podcasting service for a couple of years, transferring the shows to my MP3 player. I can't say if it's actually increased my overall listening to radio, but subjectively it has certainly improved my ability to hear what I want to hear rather than whatever the BBC happens to be broadcasting at any given time. I only wish the BBC had moved its podcasts from trial to a full-blown service - the selection of programmes is still very limited. As a side issue, there has to be some concern that the BBC is unable to move quickly enough in new media now that the new BBC Trust management set-up is in place. Or perhaps it's the thorny issue of copyright that's the hold-up. One of the best BBC podcasts, The Now Show, is currently unavailable "as some aspects of our new podcasting service are still being negotiated". When it was available, The Now Show was a good demonstration of the copyright challenges faced by downloaded radio - every programme included one or two "blank spaces" (filled by amusing presenter asides) where the broadcaster did not have the rights to make the original broadcast material available for download. It was usually, and inevitably, a music track that was the culprit. Apart from podcasts, which are a more recent innovation, radio streaming has been expanding for many years. The limitation for most users is that online radio typically requires access to a PC, but this has not stopped online streaming becoming an important platform. Again on a personal level, this has become an invaluable service when I'm travelling overseas, as an alternative to whatever local TV or radio is available, and I know this applies to many other "air warriors". Radio has always been seen as the poor relation to TV and video, even though, as James points out, it is still massively popular. In spite of its audience reach, however, radio is not underpinned by the same service provider/user relationship that characterises the pay TV industry, which has driven so much innovation in television. Indeed, "pay radio" has never caught on in Europe, in spite of several attempts, although it has started to become an important factor in the US (see Sirius and XM). Back in the analogue era, I lost count of the number of times people complained that there was no simple way to record radio programmes onto tape cassette (like a radio VCR). It's not as though the technologies were not there - the addition of a basic timer to most home hi-fi systems would have allowed this, but manufacturers felt there was no need, and the radio industry didn't seem to want to encourage it. The significance of the online platform to the radio industry has to be not only in wider programme distribution and availability, but also in a more effective and timely response to listeners' expectations. In this case, radio will surely continue to flourish. Add to Technorati Favorites

July 31, 2007 11:07 dmercer
Sky continues to surprise the market with its latest move, acquiring Amstrad, the UK set-top box supplier. Given Sky's continued financial success, it would be dangerous to bet against the benefits of this acquisition, but it certainly seems to be a curious move. James Murdoch claims that the acquisition "accelerates supply chain improvement and will help us to drive innovation and efficiency for the benefit of our customers". And BSkyB states: "The acquisition of Amstrad will provide Sky with an in-house design and development capability, which Sky believes will deliver significant operational and financial benefits and enable the Sky Group to source some of its products directly from specialist electronics manufacturers" Which suggests Sky believes it can manage the set-top box supply chain effectively, even though it has little experience as a manufacturer. And that owning Amstrad, rather than having it as a partner, will improve its current innovation process. Both of these arguments seem tenuous at best. Pay TV companies rarely own the manufacturing of their devices (Echostar would be an obvious exception), preferring instead to encourage competition between a limited number of preferred suppliers. The successful ones certainly do take a close interest in design and technology, but Sky has already done this extremely successfully over the years. And Sky is hardly lacking in innovation credentials. It has led the market, in the UK at least, in launching PVRs, HDTV and broadband downloads (and has also had its failures, such as the Gnome radio). So what benefits could Amstrad add? It is hardly a company known for its technological innovation, whatever Sir Alan would like us to think about the emailer. A clue may lie in the Apprentice star's comments: "Now I have to start thinking about my team of loyal staff, many of whom have been with me for many years". Don't shout it too loudly, but Sir Alan is getting tired. 60 years of "hustling" and it's time to move on. It's not like he can't afford to put his feet up for a bit. Sky may well get some benefit from integrating Amstrad's technical staff into its innovation teams, but it seems unlikely that this alone can justify the purchase. I suspect that Sir Alan, as usual, as done the deal at just the right time, and called in one or two favours from his old friends at Sky. There is a strategic challenge for any company when 75% of revenues come from one customer. With Amstrad now so dependent on Sky, Sugar probably figures the writing is finally on the wall for his electronics empire. Back in the mists of time, when Sky was a near-bankrupt broadcasting upstart, few remember now that it was Amstrad that helped save what was to become the best pay TV company in the world. The company's ability to source sophisticated consumer electronics and deliver them to consumers in volume at rock-bottom prices was a key factor in getting Sky off the ground. The Murdoch family will think that £125m is a small price to pay in return. Add to Technorati Favorites

July 30, 2007 17:07 dmercer
Can any serious internet user (ie more than half the population in the developed world) remember what it was like to "dial up" to use the Internet? Those endless frustrations over busy phone lines and dropped calls, the extortionate calling charges (in Europe at least) and that was if you could find a phone connection. And don't talk about the speed... How did we ever make use of 28k? Perhaps it's my age, once again, but to think that only six years ago that's how nearly everyone used the Internet is truly amazing. At the end of 2000, barely 1% of households subscribed to broadband service. The majority of those were in North America and Asia - Europe was really slow out of the blocks, and the UK didn't get going until 2002. But in 2007 we will reach more than 330 million broadband subs worldwide, and most surfers cannot imagine using the Internet at less than broadband speed. Dial-up still has a residual presence in a few countries, notably the US, largely because of lagging broadband availability. But in most advanced markets dial-up is fast disappearing - Strategy Analytics estimates that three quarters of global Internet subscriptions will be broadband by the end of this year. There were serious doubts back in the early days over whether early broadband technologies (DSL, cable modem) could reach mass market price points, but, as always, it was only a matter of time. Now we are seeing the same doubts applied to emerging access technologies like Fiber and Wimax, but, inevitably, it is only a question of time before these too become viable alternatives. Only limited competition and poor regulation will prevent DSL and cable from having serious competitors in specific countries. Add to Technorati Favorites

July 27, 2007 18:07 dmercer
Disney's ABC Networks has recently beta-launched its new online HD service. US surfers can now stream HD versions of popular shows such as Lost, Desperate Housewives, Grey's Anatomy and Ugly Betty. ABC is using Move Networks technology, a company it invested in December 2006. Other technology providers are also moving into the online HD space. In terms of video performance, we have been most impressed with Vividas, whose approach involves downloading video players on a one-time basis to the user's PC and thus, the company claims, avoids many of the pitfalls associated with traditional peer-to-peer streaming approaches. Itiva is another company to watch out for. ABC claims to be the first network to stream HD on a regular basis, but Fox has also been offering HD shows at www.myspace.com/fox. It seems clear that online HD, in spite of the obvious network and technology challenges, is firmly on the roadmap for media conglomerates. As they explore this new approach to reaching and keeping customers, they are likely to find that traditional access providers, such as cablecos and telcos, may resist their attempts to bypass their carefully managed HDTV services. The net neutrality debate is not dead yet. Strategy Analytics clients can read more here. Add to Technorati Favorites

July 26, 2007 09:07 dmercer
Matsushita (owner of the Panasonic brand) reported quarterly results yesterday that nicely reflect the shifting sands of the flat panel TV market. Matsushita was one of the first of the Japanese majors to place its bet on plasma technology, and although it concedes some ground to LCD by selling smaller screen TVs using LCD, it is firmly committed to plasma in larger displays. Yesterday's results suggest that it is LCD that is holding up the division, not plasma. LCD sales rose 40% to 740,000 units, closing in on the 800,000 plasmas sold over the same period. But its the revenue picture that tells the real story: plasma income fell 1%, its first ever decline, to $1072m, while LCD rose 9% to $475m. Panasonic's mid-term strategy is still heavily focused on plasma, as we reported recently. The company is far too optimistic about future plasma sales, according to our analysis, but it should meet targets by achieving a higher share than it expects. That's because it is likely to be one of only a couple of major companies selling the technology in a few years' time. The question the company must ask is whether it is losing out on potential sales by remaining wedded to a particular display technology. I probably get more questions from general consumers on "which is better - LCD or plasma?" than any other device issue right now. And frankly, my response is usually, plasma, if you can afford it (including the extra power consumption) and you want 40" or more. Because the best plasmas, from Panasonic and Pioneer, offer unparalleled quality with the right set-up. But they do risk falling behind in the Full HD (1080p) race, and they struggle to compete on price with LCD. If anyone is left holding the plasma baby in 2010, it is likely to be those two companies. Add to Technorati Favorites

July 23, 2007 11:07 dmercer
Or indeed, vice versa? Much of the discussion around Google's open letter to FCC Chairman Kevin J. Martin on 700MHz spectrum focuses on the impending battle between the former search engine and incumbent telcos. It can only be good news that an alternative competitor to dominant communications providers might emerge with the coming wave of spectrum sales. Whether Google will offer as "open" an alternative as any other potential bidder is debatable. "Open" is a word I normally treat with extreme caution, particularly when it comes to issues relating to network access and technology standards. What seems to be ignored is that Google has put some of its considerable weight behind the cable industry, by way of an investment in Spanish Wifi outfit FON. Time Warner Cable (with 8% of the broadband market) recently set itself apart from its telco rivals by encouraging its broadband customers to use FON's technology and shared broadband access model. Our report on the subject concludes: "Time Warner's acquiescence was a colossal win for FON, and an important milestone for shared broadband access". Google recognises that cable is the quiet foster child of the US telecoms industry. Still seen primarily as TV providers, cable companies in fact led the US industry into the broadband era, still have 54% of the market, and are stealing voice customers at a rapid clip. Also often forgotten is that cable is nearly as ubiquitous as fixed telco, and passes well over 90% of US homes. As the cable industry struggles to find a way into the mobile/wireless business to complete its quad-play offer, Google could prove to be a valuable partner in more ways than one. Add to Technorati Favorites

July 20, 2007 17:07 dmercer
Extraordinary findings from our latest research, which surveys user experience of two leading multimedia phones: the iPhone is not perfect after all. But it and Nokia's N95 stand out a mile from anything else on the market when it comes to multimedia. Apple's much-hyped device falls down on one key aspect - texting. Avid texters will not like the iPhone's touch screen initially because they need to feel the keys. The N95 was noted particularly for the quality of its music playback. But there's no question the iPhone hits the mark in terms of styling, menu navigation and video playback. Add to Technorati Favorites

July 20, 2007 16:07 dmercer
Just a note that we just released an important foundation report that examines the impact of emerging digital media models on traditional audiovisual industries. A complimentary executive summary can be found here). The report focuses on the video (movie, TV) sector, and illustrates why broadcasters, whether free-to-air or pay, are under threat from over-the-top providers and how the established value chain (production, aggregation, packaging, delivery) will evolve. Radical change is unlikely in the near term, but there is no question that the Internet is becoming ever more viable as a video platform (web TV) that will one day compete effectively with established alternatives. Add to Technorati Favorites

July 20, 2007 13:07 dmercer
SA analysts have been holding heated discussions on the potential of femtocells, an excellent example of a technology that has strategic implications across the traditional boundaries: mobile, fixed, home gateways, semiconductors, not to say mobile phones, of course. For background, femtocell is a very low power cellular transmitter designed for in-building use, and intended primarily to improve mobile phone coverage where signal reception is usually weak. Interest has been growing rapidly over the last year or so as we head towards the first commercial deployments, or so we are told. The main issue for me is what sort of company benefits from mass deployments of this technology. Technology vendors, naturally enough, can only see the upside. But what type of service provider or operator does it benefit? Mobile operators clearly wish to improve the customer experience, and potentially make savings on network costs by using a subscriber's home broadband connection for voice backhaul. But how does the broadband provider feel about this? In some cases it might be the same company, but even though there is much talk about multi-play and mobile/fixed convergence, the reality is that most home users (in the US/Europe context) do not currently buy mobile and broadband service from the same company. Multi-play adoption will grow, I have little doubt. And femtocell may be a way of persuading customers that a combined mobile/broadband service has benefits. But they could also create tension between mobile and broadband providers that are not tied in some way (the net neutrality debate comes to mind). And we suspect there are still a number of technical and regulatory challenges to overcome before large scale deployments are seen. Certainly some of the industry forecasts floating around at the moment seem to be wildly optimistic. Add to Technorati Favorites