Strategy Analytics

• 02Jul

  21st Century Consumers and the Future of Digital Media

  Digital media No Comments

  I just wanted to flag up an open (ie free) webinar we are holding next Wednesday, on the future of digital media. Topics addressed will include:
  • Digital media industry health check - where are we and where do we go from here?
  • How is the economic downturn impacting the digital media market?
  • Why is the Internet and online advertising structurally changing the entire media industry?
  • Is the web all about advertising and piracy or can pay models succeed?
  • What is the role of multi-play operators in an on-demand media world?
  The Webinar will be held at 9am (EDT), 2pm (BST), 15:00 (CET) on Wednesday, 8th July. Click here to register.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

  

  
• 01Jul

  Online TV: UK Is Priority For Hulu’s First Overseas Launch

  Connected TV, Broadband, Digital media No Comments

  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

  

  
• 01Jul

  “Deep Flaws” in Digital Britain Report, Claims Sky - Future of Broadcasting: Day Two

  Broadcasting, Broadband No Comments

  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

  

  
• 30Jun

  The Future of Broadcasting: Day One

  Broadcasting No Comments

  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

  

  
• 29Jun

  Blu-ray To Blame For Customer Confusion?

  HD and 3DTV No Comments

  Recent research from renowned polling firm Harris Interactive has put the cat among the Blu-ray pigeons by claiming that 11% of US homes now own an HD-DVD (yes, HD-DVD) player, compared to 7% which own a Blu-ray player. If true this would be great, if inexplicable, news to Toshiba, which, as its major proponent, abandoned HD-DVD technology more than a year ago after Warner famously jumped ship to join the Blu-ray camp.

  I doubt that even Toshiba will give much credence to the Harris research, however much it would love to. Quite where the 12 million HD-DVD players supposedly connected to American TV sets have come from is unexplained in the Harris survey: presumably some mystery factory in the Chinese hinterland has been churning them out and shipping them via newly discovered shipping routes (past the melting icebergs north of Russia, perhaps) and unbeknownst to the rest of the world.

  There is a serious message from these clearly erroneous results, however (for the record, much less than 1% of US homes currently have an HD-DVD device of any description, and that percentage is falling). They once again demonstrate how difficult it is to get accurate answers about technology from consumer surveys. Years ago, before HDTV sets or services had been launched in Europe, we used to include questions about HDTV ownership and interest in our user surveys, and without fail we found at least a few percentage of people who thought, for whatever reason, that they already owned and were watching HDTV.

  And why should we blame consumers for the confusion? Even as someone who follows the industry on a day-to-day basis, I try to keep my “ordinary consumer” hat on stand-by. Listening in on discussions between salesmen and customers on the retail floor is always an eye-opener, and I symphathise with both sides. Why should either customers or shop staff be expected to learn the complex language of the technology industry? If the store is demonstrating an HD-capable TV alongside an upscaling DVD player, the images could look pretty good, and why would I, as an ordinary customer, not want to describe what I’ve seen as “HD DVD”?

  So a question in a survey which asks about “HD DVD players” will inevitably be interpreted in many different ways. I suspect there are even Blu-ray Disc player owners who, if asked in the right (or wrong) way, would say they owned an “HD DVD player”. The thing play “DVDs”, and it plays in high definition. Seems to make sense to me… It’s not as if most people had ever even heard of HD-DVD (the Toshiba standard). In spite of the hype surrounding the whole standards war within the technology industry, I believe it failed to interest or concern the majority of the population. So why should they have a problem using the same term however they please?

  So the real problem for the Blu-ray camp is not the numbers from the Harris survey – everyone knows they are simply wrong. It is the fact that consumers thought they were saying the right thing, and are clearly thoroughly confused by the whole world of HDTV, discs, formats, standards and terminology. It’s time to stop blaming consumers for being confused simply because Blu-ray still hasn’t got its message across effectively.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Digital Media Devices Global Market Report

  

  
• 25Jun

  Broadband Shines But Wireless Data Most At Threat From Household Budget Cuts

  Broadcasting, Broadband, Wireless No Comments

  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

  

  
• 22Jun

  The Future of Broadcasting conference: Will Execs Address Key Issues?

  Broadcasting, Digital media 1 Comment

  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

  

  
• 18Jun

  Global Broadband Rankings Released

  Broadband 1 Comment

  Countries, and especially their politicans, get surprisingly animated when global rankings of nations are released. We’ve tried to stir things up a little more by releasing our own version, based on penetration of broadband households.

  Perhaps it’s a sign that broadband grew out of the communications industry, which generally sees individual people as its primary customers (putting business users to one side for a moment), that households can be ignored as a key metric. Certainly in the world of mobile communications it makes sense to talk about a mobile phone account being attached to an individual user.

  But broadband is different. Even though many individuals clearly make use of broadband to connect to the internet, the business of broadband is based on selling service to the household as the unit of demand, whether cable, telco or other emerging fixed line provider such as fibre. Once a household is a customer of a broadband service, that household is, generally speaking, free to allow any of its members to use that service at no additional fee. Indeed, the service provider may be unaware of how many users are accessing broadband over any given period of time. Most may put a limit on the number of devices able to access the service (via a wireless LAN or other technologies), but there is no good way to tie that limitation to the number of users sharing those devices.

  For these reasons we have always used the household, rather than the user, as a key metric when determining the potential for broadband service adoption. That’s not to say that the number of users is not important in other respects, and we track that as well. But the way the broadband business is currently set up (and it doesn’t seem likely to change any time soon) the household is the more important measure. The household is also the target (in the sense of offering universal, high speed access) for the many broadband public policies being developed around the world (see our recent discussion of Australia).

  So when we look at the percentage of total households in any given country in which broadband is available (ie paid for and used), we find, not surprisingly, that Asia-Pacific countries lead the way, with Korea out in front, as it has been for many years. At the end of last year 95% of Korean households took broadband service, compared to 88% in Singapore and 81% in Hong Kong. But one or two European countries are edging towards the top of the list, led by the Netherlands (85%) and Denmark (82%).

  It’s not until you reach number 20 (out of a total of 57 countries covered in our research), that the US appears, with household penetration of 60%. Even then, the US is ahead of other “advanced” economies such as Germany (58%), Spain (57%) and Italy (51%). And China, for all the talk of its emerging leadership in all things tech, ranks at number 43 with 21% household penetration. The rural population in China is clearly still way behind leading economies in adoption of PCs and internet access.

  Here’s the complete ranking:

  Strategy Analytics: Global Broadband Household Penetration Rankings (2008)

  1 South Korea 95%
  2 Singapore 88%
  3 Netherlands 85%
  4 Denmark 82%
  5 Taiwan 81%
  6 Hong Kong 81%
  7 Israel 77%
  8 Switzerland 76%
  9 Canada 76%
  10 Norway 75%
  11 Australia 72%
  12 Finland 69%
  13 France 68%
  14 United Kingdom 67%
  15 United Arab Em. 65%
  16 Japan 64%
  17 Sweden 63%
  18 Estonia 62%
  19 Belgium 62%
  20 USA 60%
  21 Slovenia 58%
  22 Germany 58%
  23 Ireland 58%
  24 Spain 57%
  25 New Zealand 57%
  26 Lithuania 51%
  27 Italy 51%
  28 Austria 50%
  29 Portugal 40%
  30 Greece 39%
  31 Turkey 37%
  32 Hungary 34%
  33 Slovakia 33%
  34Poland 32%
  35 Argentina 31%
  36 Romania 31%
  37 Latvia 30%
  38 Czech Republic 28%
  39 Mexico 28%
  40 Chile 27%
  41 Croatia 23%
  42 China 21%
  43 Malaysia 21%
  44Venezuela 17%
  45 Brazil 17%
  46 Russia 14%
  47 Bulgaria 13%
  48 Peru 11%
  49 Saudi Arabia 7%
  50 Thailand 7%
  51 Vietnam 7%
  52 Philippines 5%
  53 Albania 5%
  54 Ukraine 4%
  55 Egypt 3%
  56 India 2%
  57 Indonesia 1%

  Source: Strategy Analytics’ Multiplay Market Dynamics service, June 2009

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Sputnik Moment: The Call for a National Broadband Policy
  Asia Pacific Broadband Forecast: 1H09

  

  
• 12Jun

  More on Xbox Live, Sky and 1080p

  Games, Connected TV, Broadband, HD and 3DTV, Digital media No Comments

  We met with Xbox executives in London yesterday for a post-E3 briefing. Since few of us had been to E3 in person (relying instead on dodgy video streams) it was a valuable opportunity to make sure we hadn’t missed any of the key messages.

  As far as the EMEA business is concerned, Microsoft is putting forward a positive story for the 360 in 2009, relative to other console platforms. Without revealing the numbers, according to Microsoft the 360 continues to perform well in a challenging market environment. In general it seems that demand for Nintendo’s Wii console continues to fall, and there is some evidence that Wii owners are beginning to move to the competing systems as they grow bored with the Wii’s novelty factor.

  Apart from seeing video demonstrations of Natal, the new user control platform, we were also treated to a work-in-progress demo of the recently announced Sky-on-Xbox service. Many details have still to be finalised, and the demo did not use live internet connectivity but was stored locally. Nevertheless, it was clear that Sky Player and Sky TV could become an extremely attractive and easy-to-use service within the Xbox NXE interface.

  Within the Sky “portal”, viewers will flick around the various Sky options with the standard Xbox controller, using up/down and left/right movements to navigate the horizontal/vertical pathways. One vertical could be a selection of streamed Sky channels (News, Sports News, Arts etc), including mini windows showing live TV. Another vertical might take the viewer through various Sky Player on-demand options – movies, sports, TV shows etc. I can also easily imagine that something similar to the Sky+ PVR functionality will be added at some point, using the Xbox hard drive for storage.

  We also discussed the impending arrival of instant-on VOD and 1080p content. Contrary to my previous comments, it now seems that 1080p streaming will be available at speeds as low as 6Mbps, in contrast to the 10Mbps we were originally told. The uncertainty over this issue suggests that there is still a fair amount of work to be done before these services are launched commercially.

  But there is no question that, as the current generation of consoles hits maturity with the games audience they will add ever more capability as non-gaming devices in order to sustain the life cycle to the maximum. It will be very interesting to see how Sky and Xbox develop the marketing and positioning of the 360 console as the video and television services are rolled out later this year.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Global Digital Media Growth Slows to 2.7% in Q4 2008

  

  
• 09Jun

  Australia’s Broadband Strategy Sets Bar for Europe, US and Beyond

  Broadband 1 Comment

  Most countries face a challenge making fast broadband services available to every one of their most far-flung citizens, but the obstacles for Australia, with its vast tracts of sparsely populated territory, must be more testing than in most other parts of the planet.

  In fact, after a slow start Australia has done a pretty good job in recent years of getting basic broadband to the majority of its population. From a penetration rate of less than 10% in 2003, nearly three quarters of homes had acquired broadband by the end of last year, higher than both the US (60%) and Western Europe (61%).

  Not content with this success, the Australian government recently announced a policy to make fibre-to-the-home (FTTH) services available to 90% of Australian homes over the next decade. These services will offer 100Mbps broadband, with the potential to upgrade to 1Gbps over time (see my post on Korea’s announcement of 1Gbps services).

  Our recent report, “Australia’s AU$43 Billion National Broadband Network: Will It Play In Alice Springs?” , predicts that take-up of FTTH will reach 53% by 2020, when 5.2 million homes will be using 100Mbps or faster broadband.

  The AU$43bn investment by the Australian government seems like a huge bet at a time when the global economy is on its knees. But in our view it is also a forward-looking and timely statement of intent that Australia will not allow its communications networks to hinder the potential for new services and businesses over the coming decades.

  Twitter: twitter.com/DavidMercer_SA

  Client Reading: Sputnik Moment: The Call for a National Broadband Policy
  Asia Pacific Broadband Forecast: 1H09

  

  

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