| Back |
|
| Digital Commerce Markets Still Evolving | |
| Published: Feb 04, 2006 | |
| By Michael Mascioni The 2006 Digital Commerce Summit, which took place in New York City on January 31, covered much wider ground than its name implies. The event would be more accurately described as an exposition on the marketing, packaging, and distribution of digital entertainment content. "We've Got a Long Way to Go" Despite the hoopla about digital music and mobile entertainment, those markets are still in their infancy and are still evolving, as many speakers at the event noted. This reality is borne out by the fact that digital music only represents roughly 4% of all music sales, despite significant growth over the past few years. Dave Jaworksi, president and CEO of digital music platform provider PassAlong Networks, summed up the state of the digital music market by saying that "We've got a long way to go." Regarding the mobile content market, John Puterbaugh CEO of mobile media solutions provider Nellymoser, warned about the "false expectations" that "mobile TV would be like TV." Puterbaugh believes that the experience of mobile TV is "more akin to interactive experiences on the Web." The event highlighted the industry's pursuit of consistent, solid business models for digital entertainment content. But it was apparent that the market will be rife with a multiplicity of fluid business models for some time to come. This isn't too surprising, given the fluid nature of digital entertainment content itself and the relatively immature market infrastructure. Although major advances have been made in marketing digital entertainment content, several speakers noted that many inefficiencies still exist and major opportunities have been lost in the monetization of digital entertainment content. A number of speakers alluded to the significant impact such things as user-generated content will have on the digital content market. The Apple Factor One of the central themes of the conference was the success of the iPod, which some panelists attributed to Apple's powerful marketing techniques and use of top branded entertainment. Lance Ulanoff, editor of reviews for PC Magazine, went so far as to flatly predict that the "next iTunes will be iTunes," and that competing digital services will be unable to encroach on its territory for a long time. Undeserved Markets Another key undercurrent at the conference was the wealth of opportunities opened up in the digital entertainment space by catering to underserved markets. For example, eMusic has thrived with "subscription marketing of music that doesn't sell well elsewhere," capitalizing on large cutbacks at major record labels, according to the company's CEO David Pakman. eMusic primarily serves consumers in the 25-to-60-year-old age group and specializes in indie rock, jazz and blues offerings. Pakman views the lack of compatibility between various digital music platforms as a major hindrance to the growth of the digital music market. Tiered Digital Music Services Another key point underscored at the event is the importance of offering consumers a choice of digital music services. Thomas Gewecke, senior VP of digital at Sony BMG Music Entertainment, predicted the emergence of "tiered" digital music services. He foresees room for a whole spectrum of digital music services, including à la carte and subscription services, that will be targeted at different segments of the market. At this stage of the digital music market, free or low-cost ad- supported services are key, since "a large segment of the market" is averse to paying too much for digital music and is "open to ad- supported services," according to Chris Allen, head of product strategy and marketing at Yahoo Music. The improving prospects for ad-supported digital music services have also been spurred by the record companies lowering their resistance to such services. And, as a number of speakers observed, ad- supported digital music services can also be highly effective in introducing and converting consumers to paid services. Allen noted a fluid movement between free and paid digital music services. At the same time, some panelists noted that ad-supported digital music services will work better for certain music and advertisers. Ted Cohen, senior VP of digital development and distribution at EMI Music, cautioned against "walled garden" approaches to digital music that "trap" consumers. However, Cohen said, digital music providers have major opportunities to influence the consumer's next digital music purchase. PassAlong's Jaworksi said that the digital music industry should cater more to repeat customers and create "better experiences" to engender greater customer loyalty. Mobile Music According to a consensus of the speakers, mobile music has made major strides forward. Cohen was "impressed" with the speed and quality of digital music delivery from Verizon Wireless and Sprint mobile phones. Although the market is still relatively small in the US, it has enjoyed considerable popularity in such countries as Italy, Korea and Japan. Many of the panelists expect strong growth in the overall mobile music market over the next few years. One of the next big milestones in the growth of digital music will be truly achieving a cross-platform solution to digital music or "dual delivery" of digital music on the PC and mobile phones, according to Cohen. The speakers also underlined the key role of search and discovery features in digital music. Yahoo's Allen feels that search will play a "major role" in the development of digital music. Sony BMG's Gewecke contends that the discovery feature will become a much more important element in digital music, though the "killer discovery" application has yet to emerge, despite all the efforts mounted. He noted the need for greater "interface and discovery innovations" in digital music. Games A number of speakers discussed the increasing popularity and importance of games, especially casual games, on the Internet and mobile services. For example, Ralph Rivera, VP and general manager of AOL Games, reported that games are the leading form of content in terms of "pages" on AOL, generating a billion page views a month. The company's game service recently shifted away from a pure ad- supported model to a more blended business model combining ad revenue and downloadable game revenue. It is also offering more "immersive games" on its service, according to Rivera, such as giving AOL members free access to Electronic Arts' Club Pogo game site, but charges for access to the enhanced community features on the site. AOL has had considerable success converting its free users of Club Pogo to paid users of the enhanced version, which is probably helped by the fact that AOL members get a discounted monthly rate compared to other Club Pogo members. Rivera contends that games are essentially the only type of content "native to the Internet and broadband," and, as such, are best poised to flourish in broadband entertainment. From his perspective, games are best able to capitalize on the interactivity and community elements enabled by broadband. The TV Factor Television networks and cable TV providers have also been expanding their online game offerings. MTV, for example, has added such services as MTV Overdrive, a broadband service covering videogames and other topics, and Gametrailers.com, which provides game trailers and news, to its stable of game-related offerings, according to Dan Hart, VP, online games and strategy at MTV Networks. The company is also set to launch "original games," he added. Comcast offers casual games from such providers as Real Arcade, Wild Tangent and Disney, as well as G4, a TV channel exclusively devoted to videogames, reports Jennifer MacLean, senior director of games and entertainment at Comcast. MacLean noted that providing games "rewards loyal customers" and can help justify the company's cable subscription fees. The rise of casual games on the Internet and mobile services has also helped to expand the audience for interactive entertainment services. One of the most successful casual games has been PlayFirst's "Diner Dash," which, at one point, sold 250,000 units in stores in 15 minutes, claims Rich Roberts, VP of sales and business development at PlayFirst. Casual game users are 70% female and largely between the ages of 25 and 45, according to AOL's Rivera. The line between casual games and hardcore games is starting to blur. According to Steve Salyer, president of online role-playing game service provider IGE, 26%-28% of his company's hardcore game subscriber base is female. The success of online games has extended far beyond the actual games themselves, as Salyer illustrated. IGE recently held an event in China during which "4,000 people came to watch premier players" playing online games, he reported. The event was aired on Chinese TV, and will be fed back to IGE's online community. A number of online game companies at the event expect to expand their game offerings to mobile platforms, including PlayFirst and IGE. But Salyer noted that many mobile games will need to be "redeveloped and reengineered" from existing online and computer games. MTV's Hart anticipated the "mobile game experience improving dramatically," and noted that mobile games have special potential because the mobile audience is already "conditioned for premium content." Many speakers attested to the significant growth of certain segments of mobile entertainment over the past year. Chris Coyle, VP of content at mobile media service provider Mobile Streams, noted the rise of such casual games as puzzle games on mobile services. Jerry Spiegel a partner at law firm Frankfurt, Kurnit, Klein & Selz, has found an "explosion of interest" among content developers in exploiting their content in various digital media, including mobile services. Coyle said that services such as Jamster have been instrumental in educating consumers about mobile entertainment content. However, Natalie Farsi, VP of media and entertainment at mobile media management firm m-Qube, noted that mobile entertainment is being held back by the dearth of "distinctive" content. "Bubble"-Stunt or Test? A spirited discussion of the implications of the film "Bubble," which was released nearly simultaneously in movie theaters, on pay- per-view and on DVD, brought into focus key marketing and economic issues relating to digital packaging and distribution of TV shows. Larry Gerbrandt, senior VP and senior analyst at Nielsen Entertainment, characterized "Bubble" as a stunt and not "a real test." He contended that such a release schedule wouldn't be suitable for mainstream films, especially since the major studios aren't ready for day-and-date release of their films on DVD or similar digital platforms, though he felt the studios would be more amenable to "moving up" the video-on-demand window for their product. However, many of the panelists agreed that this kind of approach would be more suitable for independent films and specialized cult programming, such as "Arrested Development." In fact, according to Rex Wong, CEO of broadband video provider DaveTV, such TV shows as "Arrested Development" and sci-fi programming would work well on broadband services due to the more favorable economics broadband affords. Gerbrandt noted that reality shows such as "Survivor" are perfect for exploitation on new digital platforms. Although TV has historically been a passive medium, it is finally becoming more interactive, especially when it is delivered over broadband. In addition, such TV programs as "American Idol" are already intrinsically "highly interactive," he asserted. Threat to Broadcast TV Joshua Freeman, VP of strategy and business development at AOL Video, took the position that broadband delivery of major TV branded content doesn't necessarily pose a threat to broadcast TV. In fact, he views broadband and broadcast TV as complementary and believes that broadband versions of mainstream TV programs can help sustain those brands. Along these lines, mobisodes of one to two-minute clips of TV programs have already enjoyed some success. Gerbrandt argued that the delivery of such top-rated broadcast programs as "Desperate Housewives" and "Lost" on the video iPod has "created massive awareness" of such new digital devices, and "driven much faster adoption" of those devices. On the heels of this phenomenon, there has been a mad rush among TV program providers to pursue or at least seriously entertain licensing of their programs for new digital devices, according to such panelists as Wong. Bernard Gershon, senior VP and general manager of ABC News Digital Media Group, shed light on ABC's strategy of delivering prime TV programming on video iPods. The company offers a range of content beyond "Desperate Housewives" and "Lost," including "Commander in Chief," ESPN content and Disney Channel content. It currently offers "Desperate Housewives" and other content on iTunes roughly 12 hours after their TV network airing in the US. The whole objective of these efforts has been to build ABC's brand in the "convergent media space" and "explore multiple business models." These models include offering both free, ad-supported and subscription-based services, as well as licensing content to such services as Comcast and Verizon Wireless' V CAST. ABC delivers its digital content through operators, content aggregators and mobile virtual network operators (MVNOs). Through the digital exploitation of its content, ABC is seeking to "improve the broadcast experience" and entice viewers to return to its TV programs, said Gershon. Gerbrandt predicts a new paradigm for TV production will emerge where TV producers will develop content with the aim of exploiting all media from the outset. He likened this process to the process employed by film producers. In his opinion, one of the perfect examples of this paradigm is the exploitation of extra footage and other material from the film "King Kong" in a wide range of digital content, including daily blogs, video blogs, DVDs and videogames. In turn, this kind of cross-fertilization ultimately enhances the value of the original film/TV content, he said. The Brightcove Model Perhaps one of the most intriguing new models for digital content distribution and packaging discussed at the conference was Brightcove. The commercial preview of the service, which launched last November, is designed to facilitate a "distributed Web-based network of branded channels of programming," and essentially operates as an Internet TV platform, according to Brightcove's chairman and president Jeremy Allaire. It gives both large and small video producers and programmers control over their content, and also affords them direct contact with consumers. Currently, around 40 commercial media companies, including Barrio 305, are offering content on Brightcove's service. Brightcove helps publishers on its site develop affiliate networks and marketing channels, drawing on best practices they've built up. The company aims to establish a better alignment between communities of interest, such as fan sites and blogs, and content delivered on the site, explained Allaire. Through the service, consumers have the opportunity to share networking tools. Michael Greeson, president of the Diffusion Group, called attention to one of the major failings of the consumer digital technology market when he implored producers of new consumer digital devices to "start with the issue of articulating an audience," rather than "ending with it." He stressed the importance of "properly targeted content" for consumers, and doing "due diligence" on consumers. In this regard, he cited ESPN's sports cell phone service as an example of "finely tuned content." Greeson sought to sweep away lofty bromides on successful digital entertainment with his "3G vision" of popular digital entertainment - "girls, games and gambling." From Greeson's point of view, the digital technology companies that succeed over time will be those that display a concern for consumers, and give them a special priority. |
|
(c) Copyright 2005 Rider Research, Inc. No portion of this publication may be reproduced, stored in a retrieval system, posted on an Internet/Intranet site, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, forwarded by e-mail or otherwise without prior written permission of Rider Research, Inc |