Just arrived in Amsterdam for this year’s IBC. Doors open in a couple of hours and then it’s straight into press conferences and company briefings. Key themes this year will obviously be 3D. After the hype generated at IFA in Berlin last week for consumer 3D devices it will be interesting to see whether the broadcasters and service providers are gearing up to support the desperate need for 3D content. One thing seems clear – Disney movies alone will not be enough to sustain a home 3D market. We expect to see many examples of 3D user interfaces and guides – this is one of the major challenges if the TV industry is to transition even partially to 3D delivery over the coming years. Other technology trends in the professional space will be the continued penetration of HD in the production and distribution chain; the related trend towards 3Gig capability in the workflow, which is required to support future moves towards 1080p broadcasting; and trends in camcorder formats, or the decline of the format as it could be described. In general it will be good to test the mood of the industry after a period of severe downturn. During the last IBC http://www.strategyanalytics.com/blogs/326/ a year ago the financial world was entering crisis mode as Lehman Brothers collapsed, and shortly after the show many purchase orders were put on hold or abandoned. While the worst may now be over, the industry is still reeling from this blow and will take some time to recover. It will be surprising if the show floors are not easier to negotiate this year. Join Strategy Analytics and D. I. S. Consulting at IBC: Complimentary Analyst Presentations Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

The final session this morning explored the emergence of online television services such as the BBC’s iPlayer and Hulu. Many of the audience saw Hulu demonstrated for the first time and were clearly impressed. Hulu is now reaching around 40M users a month in the US and looking towards international expansion for its next growth opportunity. Johannes Larcher, Hulu’s Senior Vice-President, International, indicated that the UK was clearly the first priority and that the company “is talking to everyone”, without naming names. He suggested news of Hulu’s arrival in the UK would come “not too far in the future”. The Q&A session brought up the question of the differences in the UK and US broadcast regulatory environments which apparently allowed Hulu (owned by Fox, Universal and, now, Disney) to launch without problems, and yet Kangaroo in the UK, a similar venture, was blocked by the regulator. One audience member pointed out that, although only two of the US majors were the original partners in Hulu, and therefore had a relatively low market share, historically the US has blocked many previous attempts by the Hollywood studios to join forces in various ventures which involve distribution of their product. It was therefore “surprising” that Hulu has been able to go ahead, particularly with Disney now becoming a partner. It was suggested that it might only be a question of time before Hulu did come under the US regulatory spotlight because of its exclusive access to first run online content. In the UK, meanwhile, the BBC’s Anthony Rose suggested that whatever new services arrived in Europe, the rights issues would always be complex and will determine success or failure. He also indicated that Project Marquee, which will make iPlayer technologies available to other public service broadcasters, is currently being reviewed by the BBC Trust with a decision scheduled for mid-July. Twitter: twitter.com/DavidMercer_SA Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

A quick follow-up to my previous comments on 1080p broadcasting and its potential challenge to the Blu-ray Disc platform. I asked Disney’s EVP Gordon Ho, who leads the company’s BD initiative, how Disney could square the company’s claim that BD offered superior quality to any other platform when at the same time its partners, Dish and DirecTV, were marketing their new services as offering equivalent quality to BD. Ho was clearly anxious not to create a political incident with two of Disney’s major partners, and replied that the claims of BD quality by satellite providers were “a little misleading”. “1080p and 1080p are not the same,” he suggested, and that BD offers more. “In the end it’s all about educating the consumers.” In a public forum we would expect the reaction to be toned down somewhat, and these comments are relatively mild compared to the BDA’s assertion that satellite companies are being “irresponsible”. But Disney and the BDA are still some way short on the specifics of exactly why satellite and other service providers are not “technically capable” of matching BD quality. The BDA’s Frank Simonis noted that the satellite providers were using 15 Mbps for their 1080p programming, compared to BD’s potential of 48 Mbps (for video and audio). But bandwidth actually used on BD titles has been more in the region of 20Mbps, so there doesn’t seem to be a huge difference in reality. The key point about all this is that, regardless of the technical specifics, many consumers are confused about HD in general, and there is a lot of work to be done to persuade them of the relative merits of different HD content platforms. The studios recognise this, and Warner in particular is working with retailers to increase in-store comparison demonstrations of BD and DVD. But the BDA collectively also needs to be careful that the Blu-ray label is not misused. There may be no near term commercial threat to BD from digital TV providers, but if the Blu-ray designation is used inappropriately it will only help to increase consumer confusion even further. Client Reading: Blu-ray Devices: Forecasting Sales and Ownership

I raised my concerns over potential conflicts in Cisco's consumer strategy a few weeks ago. This week I had the opportunity to raise them directly with John Chambers during an analyst round table here at CES. Most of the hour's discussion centered in one way or another on the question of the changing role of service providers in the residential space, the challenges they face, and how Cisco is helping them evolve and compete. Chambers confirmed that his company planned to move into consumer markets "aggressively", so we should expect a lot more activity from the Linksys and Scientific Atlanta teams in the coming months. The answer to the question, "which do you choose - service providers or media companies?" is, perhaps inevitably, "both". Cisco plans to remain completely neutral, support open technologies, and ultimately let the market decide. This seems to be an entirely logical position - perhaps too logical. Time will tell whether Cisco's current service provider customers are happy that the company supports its emerging competitors. And, if they are not happy, whether there is even anything they can do about it... Let's face it, Switzerland doesn't appear to have suffered too much from being everybody's friend. Client Reading: Digital Disruption: Imminent and Long Term Threats to the Audiovisual Industry Online HD: Disney’s ABC Throws Down Gauntlet To Competitors, and Access Providers

One of Cisco's execs summed it up nicely today when he said John Chambers is extremely careful in treading the fine line between serving media companies and service providers. The company's Media Solutions group is at the front line of what should be a major new revenue stream, for Cisco and others, as media companies seek to distribute digital content to connected devices (See Disney/Streamboat's investment in Edgecast this week), ie, become service providers. At the same time, the Scientific Atlanta team are focused squarely on helping today's "service providers", ie cablecos and telcos, to meet the challenge of digital media. Most Cisco people do a good job of arguing that media firms aren't likely to compete directly with network access providers, at least in the near term. Either the internet isn't ready for media prime time, or cable and telcos will fight back with QoS and QoE tactics. Or media firms don't really want to bypass those folks, but are simply looking for new channels to supplement their existing ones. All those things may be true, and only time will tell. The outcome is inevitably going to be a mix of the two in the marketplace. What is uncertain is how influential advertisers can become in deciding the future. Cisco, like other tech firms, now needs to demonstrate to those companies just how much more effective the internet can be in maximising the effectiveness of their commercial messages. If they do a good job on that score, new business models around content will certainly emerge to take away some of the pain resulting from the inevitable downward pressure on paid content distribution models. The long term direction is unlikely to become clear for the next 2-3 years at least. Client Reading: Digital Disruption: Imminent and Long Term Threats to the Audiovisual Industry Online HD: Disney’s ABC Throws Down Gauntlet To Competitors, and Access Providers

Well, after day one at C-Scape I'm not much the wiser. The consumer tech vision is clear, but then it's not new either. What surprises me is that no Cisco exec has given me the same answer regarding the company's biggest challenge as it seeks growth in consumer media markets. The bulk of Cisco's revenues today comes from service providers, ie companies that depend on the end user relationship for a direct revenue stream. Scientific Atlanta, which is the company's major consumer technology division, depends on a similar relationship - consumers paying cable companies for TV and broadband service, and getting an SA set-top box for free as part of the deal. So much is transparent. Then Dan Scheinman, Cisco's SVP Media Solutions, described how Cisco is approaching media companies to help them distribute media to connected home devices, something we have talked about for many years at Strategy Analytics. Earlier in the day, as I mentioned previously, Cisco had invited the BBC's Erik Huggers to describe how the Beeb was offering full-length TV shows streamed over the web. So we naturally assumed Dan was talking about the same thing. But when I mentioned to Dan that what he was offering seemed to conflict with the SciAtl model of supporting managed delivery via network providers, he seemed taken aback. And he then suggested that he had been referring only to "short-form" video in his presentation, rather than full-length TV shows or movies. Longer-form video was apparently not quite ready for primetime, partly because it was not being distributed to TV sets yet. But then, I thought that's what Linksys was all about. Earlier in the day I spent time with Steve Silva, who joined Cisco from Comcast earlier this year. Steve is focusing on the home network device segment, and recognised the fact that the needs of service providers to manage devices across the home network could be in conflict with the needs of device manufacturers to develop products independently of service providers. In other words, Cisco's Linksys division sells products in the open retail market, but SciAtl sells devices to service providers. If Linksys sells a device that lets consumers stream video direct to the TV without the user having to subscribe to cable TV, it is competing with a set-top box provided by the cable operator (assuming the available content is similar, which is admittedly a big assumption). I am getting the impression that Cisco has just not given enough thought to managing the conflicting business relationships that are creating turmoil across the digital media and technology value chain. The company seems to expect, probably with good reason, that, whatever the outcome, it will do very nicely, thank you. After all, all content and devices will all be IP-based, one way or another. But it seems to have a blind spot about the impact all this could have on its existing customer base, and that should be cause for concern. I know Skip MacAskill, Cisco's AR man, is busy with managing the event, but these issues do seem to have been put left off the agenda. Perhaps we'll get more insight tomorrow. Client Reading: Digital Disruption: Imminent and Long Term Threats to the Audiovisual Industry Online HD: Disney’s ABC Throws Down Gauntlet To Competitors, and Access Providers

Or at least, boxes that are provided, ie "managed" by traditional TV companies like cable, satellite and IPTV service providers. The rumours are rife that Google is planning an Android for the TV space, and should be no surprise since Vincent Dureau joined the company a couple of years ago, having been CTO at OpenTV, the interactive TV market leader. He isn't there to improve search, that's for sure... What commentators such as Techcrunch are missing is the critical distinction between a TV service delivered, managed and controlled by a set-top box as part of a vertical platform, and TV that is available through open systems. I'm sure Google can come up with plenty of cool interactive TV apps, but that is neither here nor there if the vertical service provider doesn't see them as a profit generator for themselves, not Google. Google's models, for the moment, depend on open technology frameworks, not getting into bed with vertical service providers. So the company should focus its TV efforts on pairing up with emerging web TV players like Akamai and Move Networks, which are forging a path towards Round the Back delivery of HDTV over the internet. It should also work with manufacturers of "Digital media devices" as its route the end user, ie TV plug-ins that get the web video straight to the big screen where people want to see it. What web TV lacks right now is a sound business model, and that may be where Google's advertising savvy comes in rather handy. Client Reading: Digital Disruption: Imminent and Long Term Threats to the Audiovisual Industry Online HD: Disney's ABC Throws Down Gauntlet To Competitors, and Access Providers

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.

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.