Digital Consumer

In contrast to my assertion that interactive TV was struggling, video search engine Blinkx claims that we are now a nation of interactive TV users. And although Blinkx doesn’t repeat the phrase, the same could presumably be said of the US, where it carried out similar research and found, guess what, very similar results: in the UK, nearly 70% of online adults go online while watching TV; in the US the figure is even higher - 78%.

Now this is clearly not the same version of interactive TV that “interactive TV” companies like OpenTV and NDS like to talk about, or that telcos and cable companies hope will add value to their digital TV services. The two-screen version, however, is certainly successful anecdotally, and this research gives some idea of the scale of media multitasking across the population. Anyone with kids knows they just can’t sit watching TV any more - would that life were so simple! If a wireless laptop is available they’ll have that in front of them, and a mobile phone and games console nearby at the same time. It’s a phenomenon that applies increasingly to all age groups, and it represents another of the many concerns facing the traditional television industry as it struggles to keep its viewers focused on the big screen.

Blinkx’s research is a valuable input, but we should put the findings in some context. The survey looked at online users only, who are certainly in a majority in both the US and the UK, but 25% of households in the US and 36% in the UK are still not connected to the Internet (but presumably do, at least the vast majority, watch TV). So the survey numbers should be re-based to account for this. There is also the issue of frequency. By my calculations based on the Blinkx survey results I estimate that around 25% of all TV viewers in the US are regularly surfing the net while watching TV, and 20% in the UK.

And of most concern to the TV industry is the finding that very few two-screen viewers are using their PC in a way that’s related to what’s on TV. 19% of US respondents and only 15% in the UK are actually searching for content related to what’s on the big screen. So what are they doing? Again, the usual suspects:

- checking email (58% UK, 53% US)
- surfing the web for content that is not related to what they are watching (37% UK, 32% US)
- paying bills (26% UK, 22% US)
- interacting with others (24% UK, 18% US)
- shopping (32% UK, 17% US).

So putting it all together, it seems that around one in five or six TV viewers on both sides of the Atlantic are in fact being at least partially lost to the TV industry (and its advertisers) because much of their attention is on other web-based activities which are not related to the TV programme, even though the TV is switched on. TV broadcasters recognise this implicitly by the fact that they are putting so much energy into finding ways of reaching web users, but the scale of the impact is perhaps not yet fully appreciated.

Of course, the question of attentiveness and how consumers absorb information and messages from different media is too complex for any online survey to investigate fully. TV viewers have always been tempted by distractions of one form or other, and the web is just one of the latest alternatives.

Client Reading:
Digital Disruption: Imminent and Long Term Threats to the Audiovisual Industry

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?

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

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

At the IPTV World Forum today, I chaired a panel during a session on IPTV ARPUs. The preceding presentations had demonstrated how difficult it is to stay focused on the topic of user revenues without drifting into the complexities of network architecture or exciting new service concepts (that users may or may not actually want to pay for). So I asked the panel contributors to focus on the revenue issue and I thought they did a good job.

Joao Pedro Mendes represented Portugal’s Sonaecom, which has operated an IPTV service for the past year. In spite of my hopeful prompting he was unwilling to divulge precise details on the company’s ARPUs, but he did indicate strongly that on-demand content was one of the main tools Sonaecom has to get users to increase their spending, and the company considers its VOD service to be successful.

Joao’s main point, however, was that introducing new services is as much as a way of differentiating the IPTV provider from competitors in the market, serving as a customer acquisition driver, as much as increasing revenues directly.

Gudjon Mar Gudjonsson, CEO of the Icelandic solutions provider Industria, believes that one of main opportunities for IPTV providers to increase ARPUs is to offer users a much higher degree of flexibility in their ability to choose only the channels and programming that they want to pay for. This point was supported by a questionner from the audience, although he also admitted that he would also like to pay less to watch those channels. This is an long-standing debate in the pay TV industry: the battle between users wanting to pay for only the content they want to watch and the content providers who, it is claimed, have to subsidise the vast amount of content that would never get produced if it had to be profitable in its own right.

Both ANT Software’s founder, Simon Woodward, and Jonathan Wilson of Red Bee Media recommended that IPTV providers should focus on changing the relatinoship with subscribers and viewers. For example, the provider needs to become a trusted partner in guiding each user towards content he or she will like. It is IPTV’s inherent interactive capabilities that should allow providers to improve the service and increase its value. Whether customers are willing to pay more for these capabilities still remains doubtful, however. My own conclusion of the panel was that IPTV service providers should be very cautious before assuming that ARPUs will increase with every additional new product or service.

Client Reading:
US IPTV Forecast and Outlook: $13.7 Billion by 2012

IPTV World Forum’s main conference got off to a bad start today when it kicked off at 9am with hundreds of delegates still locked outside the venue. The chaotic arrangements for ticket collection meant that it took 30 to 45 minutes to get inside to hear the conference. This clearly affected the attendance at Dr Werner’s keynote, with a steady flow of people arriving as the presentation progressed.

I mentioned last year that the organisers need to find a new venue. Olympia really doesn’t fit the bill any more and the conference facilities are just not up to modern standards. Now that Informa has taken over the event I would hope that there is enough funding to provide for a better conference and exhibition facility next year. Otherwise the sight of senior industry executives, delegates and press queuing half way down the street to pick up tickets will be repeated.

Nicolas Bry, CMO Products and Services at Neuf Cegetel, was lucky to be chosen as the second speaker, when the auditorium was beginning to fill up. Mr Bry gave some interesting insights into the success of Neuf Cegetel’s IPTV service, particularly with regard to VOD. He claimed that 40% of triple play subscribers are aware that VOD is available, and that 8% have actually paid for a VOD event. In total he estimates IPTV VOD revenues in France at €30m in 2007.

The key barrier to higher VOD revenues is still awareness and the habits of TV viewers, and it will take time to change these. Neuf Cegetel hopes that the new version of Microsoft’s Mediaroom middleware, which allows operators to present VOD movie titles as mini-DVD covers, will improve take-up.

Client Reading:
US IPTV Forecast and Outlook: $13.7 Billion by 2012

Widespread rumours of Xbox console price cuts in Europe were confirmed today. The entry level SKU, Arcade, will fall to GBP159.99. The mid-range Pro will sell at GBP199.99 and the Elite at GBP259.99. Euro prices have fallen to equivalent levels. Amazon.co.uk is already selling the consoles with additional discounts to the new recommended prices.

Microsoft’s Chris Lewis, who heads up Xbox in EMEA, told us that the Xbox was now entering the “mass market space” with these new price points, opening up a “much broader range of consumers”. Clearly the fact that the Arcade is now the cheapest console of the current generation will help to bring it to the attention of a wave of customers that have previously dismissed the current range of products as too expensive.

While the Wii remains difficult to find at its recommended GBP180, Nintendo will be watching carefully for any signs that potential Wii buyers opt for the Arcade because of its wider availability or lower price point. Yes, the buyer segments for Wii and Xbox have been very different so far, but for price-sensitive customers the new prices may make all the difference.

The PS3 is now left once again as the most expensive console. Sony will be nervous that the PS3’s recent sales surge may fizzle out now that the best Xbox 360 is £40 cheaper, and the cheapest one is nearly half the price of a PS3. Sony too will be scrutinising the daily sales reports, but will probably try to hold out until later in the year before making its next price move.

We asked Lewis to address the question of the impact of the price cuts on Microsoft’s profitability. He indicated that the company’s Entertainment and Devices division has moved into “overall sustainable profitability” in the last few months, and claims that the new console price points will not significantly change this position as it continues to drive cost out of console manufacturing.

This week at London’s Olympia we are attending the IPTV World Forum, which has become one of the world’s largest events focused on the subject. Last year’s event featured a number of emerging technology firms, such as Ruckus Wireless and Vividas, that made good progress in the following 12 months, so we are hopeful that the 2008 show will be as good at predicting future trends.

Strategy Analytics is involved in a number of the conference streams this year, including Connected Home and TV-over-Net.

I will be chairing my first panel at the main IPTV conference on IPTV ARPUs on Wednesday. I look forward to a lively debate with participants from Sonaecom, Industria, Red Bee, ANT and NDS. My main question is whether it is realistic to expect ARPUs to increase at all, at least in terms of direct subscriber payments, and should IPTV providers be looking instead to indirect subsidies from third parties such as advertisers.

My second panel takes up this theme the following day when I will be debating advertising in the IPTV space with Alcatel-Lucent, Tandberg, Pilat Media, Red Bee (again), Talk Talk and Ruwido. I’m hoping these panelists will be able to shed some light on the potential for IPTV to revolutionise television advertising and when we are likely to see this happen.

Clients wishing to arrange an analyst meeting during the event should use this form.

Client Reading:
US IPTV Forecast and Outlook: $13.7 Billion by 2012

News reports today suggest that Pioneer is about to bite the bullet and exit manufacturing of plasma displays. It is in negotiations to have the panels made by Panasonic, but Pioneer would continue with its own R&D and assembly. Pioneer has fallen well short of its sales target and its investment in Kuro technology has failed to stem the decline. A company spokesman claimed that the only way to stay in the plasma business was to make a product that is “so much better than anyone else’s”, which is what Kuro was intended to be. It seems even that has not been enough.

Pioneer’s news is not unexpected: the company had already announced its entry into LCDs for sub-42″ TVs, and is part-owned by Sharp. But as one of plasma long-term stalwart supporters Pioneer’s decision to cease manufacturing is a significant moment.

Whether Panasonic can continue to meet Pioneer’s exacting standards remains to be seen. It is no small irony that Pioneer’s execs have persuaded at least this observer, with detailed side-by-side demonstrations, of the superiority of their displays in comparison to those of their competitors, yes, including Panasonic…

There are two messages from Pioneer’s decision to pull the plasma plug:

1. Any remaining Plasma supporters need to watch the bottom line very carefully, even if they do have the scale of Panasonic
2. Japanese firms are increasingly willing to address financial realities by making tough decisions to drop support for commercially failing technologies

The latter point will resonate with Toshiba, of course, after the HD-DVD saga. Competing technologies need ardent advocates but when the CFO points the finger it’s time to say sayonara…

Client Reading:
Flat Panel TV Global Market Forecast
Panasonic’s AV Strategy: Plasma Success Will Not Prevent Revenue Shortfall