I’ve spent the day with Panasonic’s European marketing team and other analysts discussing the future of 3D. The debate ranged from technical issues such as passive v. active and full v. half HD, content production challenges, and marketing in-home 3D products to consumers. Panasonic is a leading light in the drive to develop a 3D home video standard based on Blu-ray Disc technology. While nothing can yet be publicly announced it seems as though things are progressing well and that announcements should be expected in the not-too-distant future. We were also given demonstrations of 3D content from a specially adapted BD player, on a Panasonic 103” plasma using active glasses. I had seen much of this content before, although some new clips confirmed the system’s potential. Once again the Olympics material was most impressive, although Panasonic did not use some of the best clips I had previously seen. The discussion of content production led to a debate around intraocular distance as a key determinant in viewer satisfaction at the 3D experience. It was suggested that since many of the now-familiar 3D movies have been targeted at the children’s market, that the 3D aspect of the movie has been tailored towards the smaller distance between children’s eyes rather than those of adults, and that this is one explanation why adults may see a less satisfactory 3D effect than children. If this is indeed the case, it would seem to be another barrier that the emerging 3D market will have to overcome, if certain pieces of content can only be viewed satisfactorily by certain age groups, or, more precisely, those with particular interocular characteristics. Much of the discussion centered on competition between emerging 3D providers, not least broadcasters like BSkyB, which recently announced its intention to launch 3D content in 2010. There will inevitably by differences in the technology strategies across these different platforms, and the challenge for all players is to minimise the potential confusion which results. This will be particularly vital in the area of 3D-ready TVs. As I indicated previously, such products have not really begun to reach the European markets yet, unlike in the US. But when they do (expect European marketing to start in earnest in 2010) communication to consumers will have to be crystal-clear on which 3D content will play successfully on which 3D-ready TVs. Sky will surely be pushing its own “standard” and labelling, and that is likely to encourage others to tell their own stories. As I announced before, Sky does not care about any 3D standards debate. I’m not pessimistic about 3D in general. It will certainly penetrate home markets (TV, video, games) in various ways over the coming years. But the danger, as always, is that the opportunity will not be maximised if industry players focus on their own narrow interests rather than communicating clear, consistent messages to consumers. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

After another set of strong financials BSkyB has been showered with praise from financial and media commentators alike. As I indicated at the time, the vast majority of customers plan to keep spending – the same or more – on digital television, in spite of the economic gloom and uncertainty. Sky’s long established premium content and technology innovation strategies have apparently put the company into an invincible position. But delving further into our survey findings a Strategy Analytics report has revealed a key weakness in Sky’s competitive position. Satisfaction with the Sky service is generally strong, but Sky’s value for money ratings are the weakest of the major competitors. Overall we found that more than a third of Sky digital TV subscribers were less than satisfied with the value for money of this service, compared to a quarter of Virgin Media digital TV customers and only 7% of Freeview users. We also found significantly fewer customers of Sky, compared to those of Virgin Media or Freeview, who felt that value for money exceeded their expectations. Of course people could argue that we are comparing apples and pears, since Freeview by definition is a free-to-access service. Perhaps the few people who felt Freeview was not value for money thought that the price of the set-top box or TV set was too high. And it would certainly be interesting to rate Freeview against the value of the television licence fee (£142.50 annually), since most people probably do not associate the two as directly related. But as Sky itself recognises, Freeview does present a possible alternative for price-conscious TV viewers, even if Freeview’s range of content falls well short of what is available from Sky. And our survey suggests that Virgin Media, the other major pay TV competitor, has higher value for money ratings than Sky. This appears to be a sign of hope for the cable company as it seeks to become more aggressive in customer acquisition over the coming months. Twitter: twitter.com/DavidMercer_SA Client Reading: BSkyB Results Shine But Warning Signs Evident In Customer Value Ratings

BSkyB will issue its quarterly results tomorrow and we are projecting 100,000 net new subscribers for the latest quarter. This will bring the company’s subscriber base to around 9.4 million. Sky is on course to hit the 10 million subscription mark by Q3’10, a target it set some years ago. Despite a troubled economy and diminished consumer confidence, Sky has kept growing its subscriber base over the past year. This falls in line with survey research just completed by Strategy Analytics, which showed that 89% of UK digital television consumers plan to spend “the same or more” on their television service in the upcoming year as they did in the previous 12 months. Our survey also found that, faced with the economic necessity to reduce household expenditures, only 8% of Britons would drop their pay tv service altogether; 40% would scale back to a lower tier of service, however. There has been much speculation that spending on home-based activities would benefit from the recession, and that certainly seems to be the case as far as digital TV is concerned. Twitter: twitter.com/DavidMercer_SA Client Reading: Western Europe Digital Television Forecast: 1H'09

Niklas Rönnblom, analyst at Ericsson’s ConsumerLab, recently blogged about the company’s white paper called “What Consumers Want from TV/Video Solutions”. This document discusses how television and video consumption is changing and the challenges this brings for service providers. The background assumption in the paper is, not surprisingly for Ericsson, the concern that the “managed” TV/video industry will suffer because of changes in consumption habits. A key conclusion is that this industry will not be able to respond effectively until regulations are changed to create a “level playing field” so that traditional providers can compete fairly with emerging content and service providers. Finally, the report’s recommendation is that “The goal should be to offer user-centered high-quality services that motivate consumers to stay legal; not a system or service that “forces” them to stay legal”. The paper offers a series of logical arguments to support the notion that managed video/TV services should play an important role in keeping illegal content distribution to a minimum. It even attempts to quantify the relative value of countermeasures such as “fear of getting caught” as factors in consumer decisions over which content to consume. Thus far the paper does a good job of analysing the impact of illegal content distribution on the traditional, ie legal, industry. One or two observations should be challenged, however – first, the assumption that “traditional TV distributors, as well as telecom service and content providers, are failing to satisfy consumer demand for TV/video services”. This statement will come as a surprise to successful “traditional TV distributors” such as BSkyB, which continues to report customer and revenue growth quarter on quarter during the toughest economic environment in living memory. There certainly are some traditional TV distributors which are not performing as well as others, but there are different reasons in every case, and it is certainly not always because they are not offering their customers clips from Youtube or movie sharing services. Secondly, the paper’s motivation analysis is surely flawed: the main reason people watch TV/video is to be entertained, above and beyond every other reason. Instead, Ericsson positions this as a secondary factor behind the social role of content; people discuss TV shows, and feel socially excluded if they haven’t watched them; or they make copies of these shows and give them to their friends. While these social functions clearly have some relevance for many people, they are surely secondary, even for so-called “digital natives”. Would anyone really watch a boring TV show just because they thought everyone else was watching it? Ratings data would suggest otherwise. There is no doubt that managed service providers need to continue to roll out new services such as on-demand, personal content storage (DVR), integrated communications, HDTV and 3D. But it is a mistake to think that successful providers are not already doing this. The paper’s real contention is that these firms will not be able to compete when the same content is available illegally (and free of charge) from non-managed services. The paper does not have the space to go into wider issues such as the disaggregation of access and content, and the impact of emerging advertising business models (see my recent entries from the Future of Broadcasting content for further discussion). These questions will ultimately have a greater impact on the success or failure of managed TV service providers than unauthorised distribution of content. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

Another excellent session this morningat the IEA/Marketforce's Future of Broadcasting conference, representing all the key players except the BBC. The main topic of debate was the Digital Britain report (DBR), and again Sky, in the form of David Wheeldon, Director of Public Affairs, stood alone in objecting to some of the key premises of the report. Describing the study as having “some deep flaws”, he suggested that the report failed to offer an accurate understanding of consumers’ future behaviour, and that key assumptions about the public interest were based on past behaviour. It also assumed by default that the instruments of change would be “incumbents” such as the telco (BT) and the BBC, rather than alternative providers (such as Sky). Fundamentally, Sky again questionned the premise that only free content has public value, whether state or advertising funded. Instead, the DBR failed to recognise the contribution of pay television, and Wheeldon again listed the various programming investments Sky is making in the arts and drama. We also heard from Dan Marks, until last night the head of BT Vision at BT, but since this morning officially unemployed. Dan told me he was really looking forward to kick-starting the retail economy (“going shopping” were his words), and intended, once the session was over, to do no more talking about the broadcasting or broadband industries. And who can blame him? So with his BT hat partly off, Dan broadly speaking gave the perspective of the public service player, which covers both the BBC and BT, since the latter is presented as the natural partner for ensuring delivering of universal broadband service. “Broadcasters will have to cooperate increasingly with telcos to manage the broadband spectrum” as it evolves into a fully fledged new medium for delivering interactive and television services. Sky “does not challenge the concept of the licence fee, but its scale and distribution”, according to Wheeldon, but it clearly has a fight on its hands as government policy responds to the recommendations of the DBR, and in its battle with Ofcom over control of wholesale pricing. I suppose it’s inevitable that these high level discussions are characterised primarily by two divergent sets of opinions. The history of UK, and indeed European, broadcasting, has been built upon the premise of free access for the whole population to a minimum level of television content, and based on government controlled access to wireless infrastructure. As we move into the era of broadband television, supported by new communications technologies and a plethora of potential new business models, these assumptions are inevitably going to be challenged. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

So far we have not been disappointed at the IEA/Marketforce's Future of Broadcasting conference, even though the precise questions I suggested have not been addressed. We did, as expected, have to suffer the well-worn cliché, courtesy of Channel Four’s Anne Bulford, that the UK has the “best broadcasting” in the world. If somebody could offer a quantitative measure to prove this I might start to believe it. The battlelines have, as usual, been drawn between Sky on the one hand, and everyone else on the other, although Michael Grade, Chairman of ITV, in which Sky is a major shareholder, did a good job of supporting Sky’s view that there is too much regulation in broadcasting in general. As Grade said, “it’s not as though broadcasting is a life-threatening industry, like air travel or drugs”. Grade described the process involved in getting business deals done as a “nightmare involving years of lobbying”, because of the grip Parliament has on the broadcasting industry. Sky, in the form of COO Mike Darcey, has done its usual excellent job of standing up to the forces lined up against it (as it sees it). The key question, from Ofcom’s Peter Philips in the audience, was “why should Sky not be regulated like the telecoms industry?”. Darcey’s response: “because, unlike Sky, BT did not build its own network – the government did”. In that response lies the nub of the regulatory and competition issue in the UK and in many other markets around the world. Should content be split from the network? Ofcom has indicated clearly that it does not see this as an appropriate solution, instead preferring to concentrate on the issue of the rates at which Sky wholesales its channels to other service providers. Darcey today indicated clearly that it would take Ofcom to court if it went ahead with proposals to price-regulate Sky’s wholesale business. At the same time, Sky recommends that competitors, such as ITV and Channels 4 and 5, consider becoming pay TV providers as advertising revenues plummet. But competitors have already failed at this in the UK: first, Channel Four’s abandoned its premium movie service; and now Setanta has had to withdraw its pay sports channels. With a few minor exceptions (including adult content) there are no successful pay TV competitors to Sky in the UK. Sky’s success has been built on its control of network, technology platform and content. Unless another firm is prepared to make a similar investment, or content is forcibly split from the network, it is unlikely that a serious alternative will emerge. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

We’ve just completed the latest phase (in the US) in our user surveys looking at multiplay services like broadband, digital TV and voice. A key question at the moment is of course how householders will make economies as incomes contract. Before the results were in we heard many suggestions that mobile services were the last thing people would cut, and that if anything had to go it would be broadband or digital TV. After all, can’t people watch TV on the Internet for nothing these days? So we were somewhat surprised to see more or less the opposite results. When asked how they would reduce spending, out of five alternative services (broadband, digital TV, fixed voice, mobile voice and mobile data) 48% of US respondents said they would drop mobile data completely, compared to 21% opting for fixed voice and 19% saying they would drop mobile voice. 21% said they would drop digital TV altogether, and only 10% said they would drop broadband. To be fair, we also asked whether people would scale back to a lower tier, and on this question digital TV looks likely to suffer most, with 41% saying they would choose this option. Clearly many people feel they are paying too much for pay TV services they don’t get value from. But overall, two thirds of people say they would leave their current broadband deal unchanged. So poor old, unsexy broadband, without the appeal of all those fancy handheld iDevices, turns out to be the one service people would be least likely to do without. Broadband it seems really has become an essential utility. Twitter: twitter.com/DavidMercer_SA Further Reading: 48% of Americans Would Drop Mobile Data Service Completely

I’ll be heading to London’s Le Meridien hotel in Piccadilly next week to hear some of the UK’s top media decision makers debate the future of broadcasting; hence the event’s name: the Future of Broadcasting conference, courtesy of the IEA (Institute of Economic Affairs) and MarketForce . The first morning’s panel alone should be worth the admission fee. There can’t be many occasions when top execs at the BBC (Caroline Thomson), ITV (Michael Grade), Five (Dawn Airey) and BSkyB (Mike Darcey) have gathered together around the same table. Indeed, there might be a few hints at anti-trust activity if they did it too often, given that they represent more or less the entire UK television industry, with the primary and unfortunate exception of Channel Four – they will be appearing separately in the following session, but I don’t suppose we should read too much into that. I just hope the panel’s chairman manages to get these senior figures to avoid the usual platitudes about the strength of the UK broadcast industry, British TV being the best in the world and the impact of the Digital Britain report, and address the awkward issues, such as: - Why does the BBC need so much money from licence fee payers? - Is Sky’s domination of the UK pay TV market a good thing for British broadcasting? - Can ITV survive without being acquired by a major overseas media firm? Given that there are only 20 minutes for discussion this seems unlikely, but we live in hope. In any case, it looks like a fascinating couple of days and I’ll be reporting back whether or not the key questions are answered. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

Sky and Microsoft have announced that Sky’s television channels and on-demand content will be available in the UK this autumn to Xbox 360 owners with a broadband connection. There will be two basic options: 1. Xbox 360 owners who do not already subscribe to Sky will be able to subscribe to a number (yet to be determined) of Sky pay TV channels, and will also be able to download programmes for on-demand viewing. 2. Existing Xbox 360 owners who are also Sky subscribers will have access to on-demand programmes relevant to their subscription package, and may also be able to view live channels through the console, depending on whether they also take Sky’s Multiroom option. One major concern is obviously the speed and data limits associated with the user’s broadband connection. Sky told us they will be pre-testing users’ connections, and recommending a minimum of 2Mbps for live TV streaming. They also indicated that they, and not Microsoft, would take responsibility for any problems with the quality or reliability of the Sky TV service caused by a user’s broadband connection. This strikes me as something of a risk for Sky. Xbox Live has performed extremely well as an online gaming service, supported by Microsoft’s substantial investment in its own content delivery network infrastructure. But the commitment to deliver 24 hour high quality video streaming to large screen TVs puts a new set of demands on these systems. Users will not accept low connection speeds, dropped broadband links or weaknesses in their own wireless home networks as excuses why they are not getting excellent TV picture quality. We also anticipate problems when uninformed users of “Sky-by-Xbox” start to get nasty letters from their broadband service provider about exceeding “acceptable” use policies. No doubt Sky will take these opportunities to bring such customers on board as subscribers to Sky’s own broadband service, but this may not be a successful strategy for achieving early customer satisfaction. For existing Sky customers, the major benefit is that they will, finally, be able to access true (as opposed to virtual, via the hard disk drive) on-demand content from Sky on their TV sets. Sky Player on the PC is all very well, but that’s not where most people want to view movies. Sky is set to take a leap over BT Vision, whose own efforts to launch on Xbox appear to have disappeared into the ether. We are positive about this development as a further indication of the disruptive impact of over-the-top content which are affecting the media, network and device industries. Provided Sky and Microsoft can ensure the service works effectively, it should be a positive move for both companies. We won’t know for sure until it launches later this year. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

I’ve been a bit bemused by one of the more recent hype phrases that has come to dominate discussions in the media technology industry: “three screens”. It’s as though for the first time since the 1920s people are now able to choose the size of display on which they watch TV… What the phrase is intended to encapsulate, I think, is “three platforms”. In other words, the “broadcast” platform delivers to “TV”, the “wireless” platform to “mobile phones”, and the “internet” (or broadband) platform to “PCs”. Sorry for all the inverted commas, but the fact is that “screen” is becoming ever more divorced from “platform”, and that’s why the three-screen analogy just doesn’t stack up. In fact, all of these delivery platforms can be used to deliver video to any size of screen. For the last 80 years or more the broadcast industry has been delivering TV to small, and, yes, even handheld, displays. The earliest TVs were indeed only a few inches in diagonal, because the technology behind the cathode ray tube was in its infancy and extremely expensive to execute. And ever since LCD displays were commercialised in the 1980s we’ve been able to buy small, portable handheld TVs which receive broadcast TV. Not many people did buy them, but that’s another story. So “screens” have come in all shapes and sizes ever since the dawn of the technology, and for many years households have typically owned two or more screens for watching TV. What’s changing is how content is delivered to those screens, and for most sizes of screen people now have several choices in how they access content. Broadcasting still dominates for “big screen” TV, but I can buy broadcast DTV tuner cards and USB sticks for my PC, and I can access broadcast services on mobile phones in many countries. IP broadband dominates for PC “screens”, but that’s because IP connectivity became de facto in the PC market more than a decade ago. If I was brave enough I could install connected devices to bring “TV” via IP to my big screen TV, and the process will surely become easier over the coming years. To watch TV on my mobile phone I can use the broadcast (see above) or the cellular networks (combined with IP in some cases). Today’s 3G networks don’t tick all the boxes for delivering TV and video, but that may change as 4G comes along. Mobile operators will certainly be targeting users of other “screens” with TV and video services, though they will have a tough job competing with alternative platforms. So to understand the trends more precisely, media companies really need to think in terms of multiple screens aimed at different user segments and different behaviours. We will all have access to several screens during a typical day, each one is potentially a TV and video display, and each one might be supported by more than one platform. It may not be as neat and simple as the three-screen hype but it does better reflect the complexities, and the opportunities, of the emerging digital media environment. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Survey: Italy Country Profile