Digital Media Strategies

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

May 2, 2008 11:05 dmercer
Much hype in the last 24 hours about yet another new IP video venture. Sezmi, formerly known as Building-B, has received $17.5 million in funding from venture capital firms and includes prominent engineers Buno Pati and Phil Wiser (formerly of Sony) as its founders. It hasn’t disclosed where its initial trials are taking place, nor who its broadband service provider partners are, but is now at least public about its intended offer. However the company tries to spin it, Sezmi’s new service is pretty much a reiteration of many previous attempts to use digital terrestrial television to compete with cable network providers like Comcast. Predecessors have included USDTV, Geocast and iBlast, and the most recent, Moviebeam, gave up in December last year after attracting a paltry 1800 subscribers. All these services have tried, one way or another, to use capacity in the digital TV broadcast spectrum to increase the range of programming and choice and offer an alternative to cable TV. As with Moviebeam, Sezmi will use a DVR set-top box to store programmes and give viewers a quasi-VOD experience through an integrated program guide. And it’s certainly an impressive DVR – the 1TB hard drive could store 1000 hours (42 days) of video depending on quality settings. Unlike Moviebeam, Sezmi will also use a broadband connection to download programmes, alongside the over-the-air broadcast signal. And it’s the broadband part that Sezmi claims makes it TV 2.0. It suggests that it will partner with broadband service providers, while at the same time claiming that infrastructure costs are low. Given that BSPs are moaning about the cost of transporting rapidly growing mountains of IP video, I suspect that Sezmi’s position on infrastructure costs may fall on deaf ears in the telco community. What Sezmi is doing, of course, is trying to replicate what is already happening in Europe, where telcos (eg BT Vision) are combining DTTV with IP video to create a quasi-IPTV service. There are several key differences, however. First, Sezmi is not the telco, and does not provide broadband service, so until it sorts out that part of the equation it’s not clear whether company will be competing as an over-the-top provider or simply enhancing existing managed BSP packages. Second, the US DTV service is simply not as consistent as what’s available in many parts of Europe. Sezmi claims it has developed advanced indoor antennas for the ATSC system, but until we see this perform in the real world we will have to reserve judgment. Sezmi is targeting non-digital TV customers in the US, so it had better get a move-on. The 10% or so who still really solely on analogue terrestrial will have decided what to do after switchover within the next 12 months, and those using analogue cable will be tempted with new cable offers to switch to digital. One way or another, Sezmi in its current form looks like it will go the way of its not-so-illustrious predecessors. Client Reading: US IPTV Forecast and Outlook: $13.7 Billion by 2012 Add to Technorati Favorites

May 1, 2008 14:05 dmercer
We have just published a major piece of research into what amounts to a new digital consumer device segment: Mobile Internet Devices (MIDs). With screen diagonals of between 4” and 6” these touch-screen handheld gadgets fill the gap between web-browsing cellphones (smartphones) and miniature portable computers (for example UMPCs and netbooks). They’re the latest attempt by computing, mobile and consumer electronics companies to create a market for handheld gadgets that give consumers access to the full range of Internet applications they are familiar with on their PCs. Our estimates indicate that annual revenues will exceed $17 billion by 2014. Global sales in 2008 are expected to reach 1 million units, and will continue to grow at an average annual rate of 102% to reach 69 million units by 2014. The report also examines the main rivalry in technology platforms between Intel and ARM. ARM dominates the mobile phone industry today, in spite of several attempts by Intel to penetrate this lucrative industry. Intel is hoping that MIDs will finally give it the opportunity to build a significant business outside of its PC market stronghold. A key part of Intel’s strategy will be its Moorestown system-on-a-chip, but until this arrives in 2009 or 2010 ARM-based vendors will be able to use this window of opportunity to establish market leadership positions. The report concludes that the proven advantages of the ARM ecosystem in mobile devices will eventually outweigh those of the Intel platform and that ARM devices will comprise the majority of MID sales thru 2014. Client Reading: Mobile Internet Devices: Heavyweights Do Battle For $17Bn Prize Add to Technorati Favorites

April 30, 2008 18:04 dmercer
Sky’s quarterly results announcement today focused on steady growth in the total customer base. Given the tough economic background and talk of falling consumer spending it is no mean achievement for the company to add 289,000 new customers in the three months to March, although churn left a position of 56,000 net new adds. The company remains on track to meet its 10m target by the end of 2009. Given the constant promotion Sky is giving to HDTV, however, its performance here is very disappointing. 43,000 customers added HD service in the quarter, bringing the total to 465,000, or 5% of the total base. Of those 43,000, 24% (10,000) were customers new to Sky. This means that less than half of one per cent of Sky’s customer base at the beginning of the quarter were persuaded to upgrade to the HDTV service, in spite of the constant bombardment of Sky HD advertising and cross-promotion. Sky touts the addition of more channels during the coming months, but even with 18 to choose from the selection looks poor compared to the hundreds available on standard Sky multi-channel and premium packages. To be fair, it is the best performing HD service in Europe (which doesn’t say much for the rest), and it has also taken HD providers in the US nearly 10 years to make HDTV a success. Sky’s numbers illustrate how tough it is for service providers to persuade their existing customers to add new services. Even Sky+, which is the fastest growing service in terms of new customers, was added by only 1.7% of existing customers, and only 1.5% added broadband. Multiroom fared even worse than HD in Q3, although it had already built a much larger base of users. Sky’s position on HD is that it took several years before Sky+ adoption began to grow rapidly, and it expects a similar pattern to emerge with HDTV. But this will be little encouragement to HD broadcasters and indeed set-top box vendors. Until Sky changes its marketing approach (making at least some of its own and partners’ HD channels available at no extra charge, and reducing set-top box costs) it seems that HDTV is set for a long slow journey towards mass adoption. Client Reading: HDTV Channels Shut Down: A Sign Of Things To Come? Add to Technorati Favorites

April 25, 2008 12:04 dmercer
Strategy Analytics' latest quarterly mobile phone handset data is released today. In spite of fears of a global recession unit sales were up 14% in Q108 v. the same period last year. Even in a market as large as this (282 million units shipped in 3 months) the rate at which market shares can change is a warning to current leaders not to lose their focus. Motorola's problems are well documented, but to lose nearly 9 percentage points within 12 months is an indication of the malaise within the company. Its share is now 9.7%, having been nearly 22% as recently as 2006, and both LG and Sony Ericsson are within striking distance of Motorola's third position. Samsung has also been a major beneficiary of Motorola's decline, and is now a clear no. 2 behind Nokia. The Finnish giant maintained its 40% share attained in Q407, although its US performance remains an area of concern. Client Reading: Motorola, Sony Ericsson and Apple Lose Global Handset Marketshare in Q1 2008 Add to Technorati Favorites

April 22, 2008 17:04 dmercer
Nokia brought analysts together today to discuss the introduction of Sony BMG as the second major partner in its Comes With Music (CWM) digital music venture. Together with Universal, which was announced previously, Nokia claims this gives it access to more than 60% of the recorded music catalogue. We expect the other two majors to follow in due course. CWM is clearly an important venture for Nokia as it seeks to expand its services business and support its continued dominance of the handset market. But its significance is potentially even greater for the music industry. CWM represents a radical departure for music majors who have depended for more than a hundred years on a business model based on one-time purchase and permanent “ownership” of individual songs, tracks or compilations (albums). CWM will allow its subscribers to download an unlimited number of music tracks, and those tracks can be kept permanently (“for ever”) by the subscriber for storage on one mobile phone and one PC, whether or not the user still maintains a CWM subscription. The licence (using Windows DRM) can be transferred to a replacement phone and PC as required, although no more than two devices can be supported simultaneously. Nokia’s plan is to seed the market with CWM-enabled devices, which will be sold with one year’s subscription included in the price. Revenue from these CWM subscriptions will be shared with the music companies on a market share basis. Nokia is still determining which options to offer once the year’s subscription is finished. It would obviously prefer customers to buy a new handset, and it implies that it believes many CWM handset buyers would normally replace their devices after a year in any case. What is most significant for Sony BMG, Universal and future CWM partners is that they have accepted the removal of the traditional direct revenue relationship between permanent ownership of the individual music track or album and the end user. CWM subscribers will be able to download any and, in theory, all music ever published, and to keep those tracks for ever, but they won’t directly be funding individual pieces of music by making multiple purchase decisions. This should create quite a different mindset for consumers of recorded music, who now don’t have to worry about extra payments every time they “buy” a new track or album. They should also be able to download with the confidence that their music will always be available in a stored format, although there will doubtless be concerns that the promise of “for ever” will be broken – Sony BMG and Nokia may live to regret this bold assertion. Nevertheless, CWM will surely encourage greater consumption, ie download, of music than in any current digital or physical media model. Whether users actually find the time to listen to all the music they might be tempted to download is another question. Sony BMG’s President of Global Digital Business, Thomas Hesse, said that the CWM concept clearly resonates with consumers and should help turn the mobile phone into the music device of choice for many consumers. It clearly also helps to remove the need to buy music in the traditional way, so I hope that Sony BMG and Universal have done their sums correctly. The implication from Nokia was that if only a single-percentage share of their handset sales were CWM-enabled, this would already provide a revenue share for music companies that exceeds today’s digital music business. Beyond this “basic” revenue stream, Sony BMG’s long-term goal is that CWM will encourage the habit of acquiring new music on the mobile phone, ensuring that its share of subscription revenues continues. Time will tell whether the plan works, but this seems to be one of the more promising ventures in the rapidly evolving world of online music. Client Reading: Online Music: Global Market Forecast Add to Technorati Favorites

April 18, 2008 11:04 dmercer
It's early days in the era of high def discs, but already it seems as though the post-DVD transition is having the desired effect for the studios. According to Home Media Magazine's research, total consumer spending on DVDs and BDs in Q108 rose by 1% compared to the same period in 2007 ($5.51bn v. $5.46bn). Within this total, rental spending declined 1.6% to $2.04bn, while sell-through increased 2.3% to $3.47bn. And within sell-through, DVD sales fell 1.2% but BD was up by 351%. In other words, BD was the only factor that stopped the market declining. The maturation of the US home video market has been a reality for a few years, as both DVD sales and rental have flattened and even declined slowly. This is less the impact of online, as some would have us believe, than the simple fact that the DVD platform has matured naturally after explosive growth in early part of the decade. The latest data are remarkable in a couple of ways. First, that we are in the middle of the worst economic downturn the US has seen for many years. Second, that there is any growth at all in an industry that many had suggested is now in permanent decline because of digital streaming, downloads and, of course, piracy. And third, that Blu-ray is already having the positive impact the studios hoped for at such an early stage in the platform's history. All those scare stories about slow BD player sales and the weak impact of PS3 on movie sales seem to be wide of the mark. As our research showed recently, there will be nearly 30 million homes worldwide with a BD player of some type by the end of this year, and that will already be enough to make a significant impact on the home video market. As BD begins to have a similar impact in Europe it will be interesting to watch the studios' approach to digital distribution. While they continue to explore new revenue models, such as the deals with Xbox Live, it seems likely that Blu-ray will dominate their attention for some years to come, just as DVD was beginning to do 10 years ago. Client Reading: Xbox Live Boosts Addressable HD Market as Warner Bros Continues Rollout of Day-and-Date Strategy for New Movies Blu-ray Devices: Forecasting Sales and Ownership Add to Technorati Favorites

April 16, 2008 13:04 dmercer
Premiere, the biggest pay TV provider in Germany and Austria, yesterday confirmed what had been expected for some time, namely that it will begin using NDS’s Videoguard conditional access (CA) technology this quarter. Videoguard will be used for the company’s digital satellite subscribers. Software will be downloaded to most of the existing set-top boxes and new smart cards distributed. For older boxes that are not suitable for the new system, new smart cards from the existing CA supplier, Nagravision, will be introduced. All new digital satellite set-top boxes will come installed with Videoguard. Kudelski Group, which owns Nagravision, put a brave face on the news, focusing on the agreement to introduce its new smart cards, and claiming that the contract renewal represented “equivalent overall value”. There can be little doubt, however, that this is a significant reversal for Nagravision, which clearly could not win Premiere’s complete confidence. News Corp, owner of NDS and 22.7% shareholder in Premiere, will be smiling on both counts, as Premiere’s share price rose on the news, and NDS confirms another major TV service provider as a customer for its CA technology, which now resides in 82.7 million set-top boxes worldwide. It has never been straightforward analysing the conditional access business, which, like any security business, is, by definition, somewhat secretive. NDS has established itself as the global market leader over the last 20 years, first launching with Sky’s analogue TV service in the UK in 1990. NDS has often emphasised to me that any company claiming that technology alone can solve content security issues is engaging, to put it politely, in wishful thinking. Technology ultimately will always have its limitations. The key is that behind every attempt to break a security system there hides a human being. It is the focus on those people, as much as the technology, that is a big part of NDS’s story. But it’s not all fun and games for NDS. On the other side of the Atlantic the company is embroiled in a court case with Dish Network, the operator of the DISH digital satellite TV platform. Dish claims that NDS engaged in copyright violation, conspiracy, and piracy in order to damage the company's business. If the case is proven, damages against NDS could run to hundreds of millions if not billions of dollars. That prospect for the moment will not give too much concern to Premiere, which would appear to be well on the way to solving its pirate user problem, estimated at 1m boxes, and paving the way towards the faster digital TV growth that Europe’s largest TV market will surely support. Client Reading: HDTV Channels Shut Down: A Sign Of Things To Come? Add to Technorati Favorites

March 27, 2008 15:03 dmercer
My attention was drawn to the headline on the APTS's recent news item More Than Half of Over-The-Air Consumers Prefer Free Broadcast Television After The DTV Transition. "More than half"... hmmm. These are people who presumably have resisted the temptation, unlike nearly 90% of American households, to start paying for a TV service from a cable, satellite or telco provider. It is surely a lot more surprising that 38% of current OTA users have not already decided to continue with free OTA DTV. 10% of that 38% in fact have already indicated they will begin paying for TV, so that's a crumb of comfort for MVPDs. The general confusion over the US DTV transition is not helped when industry bodies like the APTS report the data in such a confused way. The APTS confirmed the some of the actual survey data to me, although continues to deny the release is badly written. The real survey findings are as follows: 76.4% of the 113m US TV households (ie 86.3m) have "at least limited awareness of the DTV transition". Of this 86.3m 48% (ie 41.4m) "claim awareness of the DTV transition end date". Of this 41.4m 55% (ie 22.8m) have "correct knowledge of the DTV transition end date". So when the APTS says it's 55% of "these" households, referring to the 76.4%, it is wrong - it is referring to the 41.4m. I'm glad to clarify that on their behalf, although they gave me the impression they didn't care a whole lot about discussing such minor details with non-US residents, or possibly with anyone else. Perhaps that's because the DTV transition in the US really is meaningless to the vast majority of US citizens, in contrast to its (arguably growing) importance in the European broadcasting landscape. Kudos nevertheless goes to the various US organisations involved in increasing awareness of the switch-off of analogue TV next February. Three quarters of US people now have at least some awareness of this, although the APTS survey suggests that nearly half of those who think they know when it will happen are wrong, so there is a lot of work still to be done. Client Reading: The Television and Movie Industry Explained: Where Does All the Money Go? Add to Technorati Favorites

March 25, 2008 15:03 dmercer
Advance warning of a press release we are distributing later today: Blu-ray Disc’s victory in the recent format war with HD-DVD will propel the technology into 29.4 million homes worldwide by the end of 2008, according to the latest research published by Strategy Analytics’ Connected Home Devices service. According to the report, "Blu-ray Devices: Forecasting Sales and Ownership", Sony’s PS3 games console will continue to drive the Blu-ray market until 2009, after which standalone Blu-ray players will become the dominant segment. By 2012 more than 132 million homes worldwide will own at least one Blu-ray device. “HD-DVD’s withdrawal leaves the way open for Blu-ray to become a major revenue earner for technology vendors and content owners alike,” says David Mercer, Principal Analyst. “The 265 million homes that will own an HDTV by 2012 and Hollywood’s need for a new growth engine represent huge incentives for the industry to coordinate marketing activities and demonstrate unified support for the successor to DVD.” The report predicts that global sales of Blu-ray devices will reach 18.8 million units in 2008, including 4 million standalone players, 13 million consoles and nearly 2 million PCs. By 2012 annual sales of all BD devices will reach 57.4 million units; the largest market will be Europe, with 26.4 million, followed by the US (22.6 million) and Japan (8.4 million). Blu-ray Disc Devices: Household Penetration Forecast % of all households with at least one BD device 2005 2006 2007 2008 2009 2010 2011 2012 Japan 0% 2% 6% 15% 26% 38% 48% 55% US 0% 1% 4% 10% 20% 29% 38% 44% Europe 0% 0% 2% 7% 13% 20% 26% 32% Source: Strategy Analytics’ Connected Home Devices service Client Reading: Blu-ray Disc Devices: Global Market Forecast Add to Technorati Favorites

March 14, 2008 15:03 dmercer
At the IPTV World Forum I spent some time with Gudjon Mar Gudjonsson, the founder and CEO of Industria. Gudjon is an Icelandic entrepreneur and Industria is his umpteenth company since he first founded Oz Communications in 1991. Industria now has around 80 employees and offers IPTV solutions to service providers, mostly smaller companies or those in emerging markets. Industria was demonstrating the latest release of its IPTV middleware, Zignal 2.0, based on open standards and able to run on low-powered set-top boxes. While the bugs are still being ironed out prior to commercial release, the EPG appeared to be very fast, with rapid selection of channels and menu items. Stefan Baxter, the company's CTO, explained that the key to the middleware's performance was that it was not based on HTML, instead using Scalable Vector Graphics. The company has also recently announced Zignal Cloud, which is a subscription-based IPTV server infrastructure, effectively offering an off-the-shelf solution to service providers wishing to set up an IPTV platform quickly and easily. You can read details in Gudjon's blog. Industria has grown rapidly in its few years of existence and is one of a number of IPTV providers seeking to move the industry away from its focus on massive, complex and expensive network platforms. As the IPTV market expands and service providers increase their focus on cost management there is likely to be increasing potential for such approaches to disrupt the traditional vendor marketplace, although the major operators will always be concerned whether innovative solutions such as Industria's can scale to the millions of users they wish to reach. Client Reading: US IPTV Forecast and Outlook: $13.7 Billion by 2012 Add to Technorati Favorites