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?

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

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

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

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?