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www.parksassociates.com • www.connectionsconference.com • www.connectionseurope.com • www.connectionsindustryinsights.com
media preferences: physical vs. digital
laura allen phillips, Research Analyst, Parks Associates
in this issue
Challenges and Trends for Online
Video and Music, August 2011
- Challenges
- Consumer Habits
- DRM Issues
- The Digital Locker
Consumers want more access points for their digital content. To content owners, distributors, and service providers as well as over-the-top outlets, this desire for ev-erything everywhere represents both fresh opportunities and new challenges.
For music, the greatest of these challenges is conquering the concept that music is “free.” Consumers are currently consuming more digital music than ever before but are paying less for it, with the industry’s annual revenue growth declining from 91% in 2006 to 6% in 2010.
Online video industry players face different challenges. They need to deliver consistent, high-quality video streams to a multitude of different screen sizes and resolutions amid a competitive environment where a variety of players are vying for each subscriber and each additional consumer dollar.
Parks Associates’ recent coverage of the online video and digital music space has
identified several trends – both consumer and industry – that ultimately relate to the movement of content onto more devices, into new environments, and through new delivery models. From the consumer per-spective, new options for viewing and ac-cessing digital content are attractive, but consumers are not yet ready to replace physical with digital media completely. Cur-rently music collections hold the most ap-peal, but even then, most consumers are unwilling to pay more than $5 per month extra for this capability.
upcOming events
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November 8-9, 2011
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links
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CONNECTIONS™ Europe
Challenges and Trends for Online Video and Music
Appeal of Access ThroughInternet-connected Devices
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
Source: Digital Media Evolution II © Parks Associates
0% 30%15%
Media Preferences: Physical vs. Digital
Multiscreen Solution Providers Combining Content Protection with Optimization
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
© Parks Associates 0% 40%20%
$1 - $5 $6 - $10 $11 or more
(U.S. Broadband Households)
Consumer Willingness to Pay for Online Content Access
(U.S. Broadband Households)
(U.S. Broadband Households)
Mostly electronic with some physical
Mostly physical copies with
some electronic
Only electronic
copiesOnly physical copies
Some electronic copies & some physical copies
Source: Digital Media Evolution II | © Parks Associates
Content ProtectionSolutions/Technologies: Multiformat Video
Delivery OptimizationAdaptive Streaming
•CAS•DRM•Watermarking
Comprehensivesolutions designed for multiscreen, online, and mobile content
•Nagravision •Widevine•Irdeto •Verimatrix
Both online video and music service providers
share common obstacles in licensing issues and the minefield of digital rights
management.
Despite these potential stalling points, con-
sumers are watching more online video
and using more digital music services than
they were even a year ago. What does this
mean for the digital content industry? More
screens, devices, and access points rep-
resent a greater reach into the consumer
home entertainment ecosystem - and it
also means more players and a more com-
petitive field.
Increased opportunity is luring more en-
trants from various surrounding industries:
mobile operators, telecoms, ISPs, retailers,
www.parksassociates.com • www.connectionsconference.com • www.connectionseurope.com • www.connectionsindustryinsights.com
and OEMs are competing with pay-TV operators, over-the-top (OTT) content vendors, and
music service providers to attract new subscribers, hold onto existing ones, and increase
the profile of their product offerings.
Pay-TV providers must protect their subscriber base from CE manufacturing and media
company offerings like Sony’s Qriocity and from wireline and mobile operators like Verizon.
OTT vendors such as Netflix, with 20 million U.S. subscribers at the end of 2010, also threat-
en to disrupt pay TV’s ability to upsell premium content. This content often constitutes a
significant portion of an opera-
tor’s monetization strategy, and
providers such as AT&T, Com-
cast, and Time Warner Cable are
addressing this competition by
adding offerings such as multi-
screen initiatives.
Online and cloud-delivered
premium video streams are
vulnerable to fluctuations in
network quality and varied con-
figurations among recipient
devices (i.e., screen size, reso-
lution, and content protection
mechanisms). To address these vulnerabilities, key players have developed video optimiza-
tion technologies, including adaptive bit-rate streaming solutions, and content protection
technology providers such as Verimatrix, Irdeto, and Nagravision are currently offering solu-
tions which combine protection with optimized delivery mechanisms.
premier spOnsOrs
Appeal of Access ThroughInternet-connected Devices
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
Source: Digital Media Evolution II © Parks Associates
0% 30%15%
Media Preferences: Physical vs. Digital
Multiscreen Solution Providers Combining Content Protection with Optimization
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
© Parks Associates 0% 40%20%
$1 - $5 $6 - $10 $11 or more
(U.S. Broadband Households)
Consumer Willingness to Pay for Online Content Access
(U.S. Broadband Households)
(U.S. Broadband Households)
Mostly electronic with some physical
Mostly physical copies with
some electronic
Only electronic
copiesOnly physical copies
Some electronic copies & some physical copies
Source: Digital Media Evolution II | © Parks Associates
Content ProtectionSolutions/Technologies: Multiformat Video
Delivery OptimizationAdaptive Streaming
•CAS•DRM•Watermarking
Comprehensivesolutions designed for multiscreen, online, and mobile content
•Nagravision •Widevine•Irdeto •Verimatrix
appeal Of access thrOugh internet-cOnnected devices
There is growing interest in accessing content through
connected devices.
CONSuMER HABITS
Consumer are used to getting music for
free, so music service providers are add-
ing extra value in the form of effective
discovery engines, mobile device access,
recommendation mechanisms, and edi-
torial information about artists, albums,
and genres. Music services are also ex-
perimenting with new business models
based on selling access as opposed to
ownership. Slacker, Last.fm, and We7 offer
customizable channels of music with play-
lists based on a subscriber’s favorite artist
or existing collection. Others such as MOG,
Napster, and Rhapsody offer more of a
music-on-demand experience. Revenue
plans for these services include ad-support-
ed and subscription-based models. Servic-
es like Pandora and Spotify (Europe) offer
both options: free (ad-supported) basic ac-
counts and premium (subscription-based)
upgrades. It is hardly surprising that sub-
scription is the tougher sell; however, some
have been able to convert free users to paid
subscribers by offering mobile access to
their paying user base. Spotify had over one
million paid subscribers as of early 2011.
www.parksassociates.com • www.connectionsconference.com • www.connectionseurope.com • www.connectionsindustryinsights.com
and of new launches. But this process does
offer some benefits to pay-TV operators
who could potentially wield their sizeable
market advantage to ensure content own-
ers do not offer more favorable licensing
terms to their OTT competitors. Given that
OTT vendors must keep the price of their
services low in order to gain market trac-
tion, having to pay higher licensing fees will
make it more difficult to effectively mon-
etize their offerings.
THE DIGITAL LOCKER
Licensing for digital music is complex, with
some usage models requiring licensing
agreements with several different agencies,
on multiple terms, for the same content.
Adding to this complexity is the introduc-
tion of the digital locker concept.
Music service providers, anxious to make
the digital locker available to users, are not
unified in their approach to the licensing
question. For Sony, obtaining the rights
from content owners was a necessary first
DRM ISSuES
Digital rights issues are be-
deviling for both the music
and video industries. For vid-
eo, the movement of content
to new screens means rene-
gotiating license agreements
with content owners. Pay-TV
providers, arguing that sub-
scribers are already paying
for the content, believe that
the delivery screen should
be irrelevant. Content owners
disagree. Each new device or
initiative reignites this debate
Appeal of Access ThroughInternet-connected Devices
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
Source: Digital Media Evolution II © Parks Associates
0% 30%15%
Media Preferences: Physical vs. Digital
Multiscreen Solution Providers Combining Content Protection with Optimization
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
© Parks Associates 0% 40%20%
$1 - $5 $6 - $10 $11 or more
(U.S. Broadband Households)
Consumer Willingness to Pay for Online Content Access
(U.S. Broadband Households)
(U.S. Broadband Households)
Mostly electronic with some physical
Mostly physical copies with
some electronic
Only electronic
copiesOnly physical copies
Some electronic copies & some physical copies
Source: Digital Media Evolution II | © Parks Associates
Content ProtectionSolutions/Technologies: Multiformat Video
Delivery OptimizationAdaptive Streaming
•CAS•DRM•Watermarking
Comprehensivesolutions designed for multiscreen, online, and mobile content
•Nagravision •Widevine•Irdeto •Verimatrix
cOnsumer willingness tO pay fOr Online cOntent access
multiscreen sOlutiOn prOviders cOmbining cOntent prOtectiOn with OptimizatiOn
Appeal of Access ThroughInternet-connected Devices
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
Source: Digital Media Evolution II © Parks Associates
0% 30%15%
Media Preferences: Physical vs. Digital
Multiscreen Solution Providers Combining Content Protection with Optimization
Your personal music collection
Your personal collection ofmovies & TV programs
Videos recorded to your DVRs
Your pay-TV channels
© Parks Associates 0% 40%20%
$1 - $5 $6 - $10 $11 or more
(U.S. Broadband Households)
Consumer Willingness to Pay for Online Content Access
(U.S. Broadband Households)
(U.S. Broadband Households)
Mostly electronic with some physical
Mostly physical copies with
some electronic
Only electronic
copiesOnly physical copies
Some electronic copies & some physical copies
Source: Digital Media Evolution II | © Parks Associates
Content ProtectionSolutions/Technologies: Multiformat Video
Delivery OptimizationAdaptive Streaming
•CAS•DRM•Watermarking
Comprehensivesolutions designed for multiscreen, online, and mobile content
•Nagravision •Widevine•Irdeto •Verimatrix
Digital music industry players face an even more formidable obstacle: the monetization of “free.”
Digital media and connected CE• Impact of the cloud - online video; music; games; and applications• New roles for service providers; broad casters; and content producers• Business strategies built on connected TV content & apps• Service opportunities in synchronizing fixed and portable CE
Video-on-demand, multiplatform video, and TV Everywhere
• Expanding the entertainment experience to the entire home• Building the perfect interface• Integrating social networking• Discovery - helping consumers find new content
Impact of New Technologies• The real potential of 3D• Smartphones and mobile apps• The changing role of the game console• Controls and energy management
nOv 8-9, 2011
CONNECTIONS™ Europe, produced by Parks Associates, offers high-level analysis and con-sumer research, networking opportunities, and information on emerging residential and mobile technologies and services.
www.connectionseurope.com
spOnsOrs
www.parksassociates.com • www.connectionsconference.com • www.connectionseurope.com • www.connectionsindustryinsights.com
step before launching its Qriocity offering.
Amazon, conversely, launched its “Cloud
Player” locker in March 2011 without even
consulting rights holders or obtaining ad-
ditional licensing. Because the digital locker
represents something of a gray area, consis-
tent licensing policies will take some time
to evolve. But evolutionary cycles for new
technologies and usage models are short-
ening. Given that other large players such
as Google and Apple are enterting the ring,
the movement to more consistent licensing
policies may be a matter of months rather
than years.
Apple, like Sony, worked with the major
studios to obtain licensing in advance of its
digital locker service launch in early June
2011, a wise move for the consumer device
giant. The iCloud service includes a scan-
and-match utility capable of identifying ti-
tles within a user’s existing library and mak-
ing those available from the Apple iTunes
catalog without requiring the user to load
the music collection into the cloud. The
approach, which requires special licensing
from rights holders, gives Apple a marked
advantage over other services. If other ser-
vices wish to add this option, they will have
to obtain those rights as well. While this is
not the sole factor pushing the industry to-
wards more consistent licensing, it is a very
relevant consideration and could prove to
be an important driver.
For consumers, the digital locker establishes
a centralized venue for storing and access-
ing their digital music. For rights holders,
the digital locker represents a new usage
model, requiring new licensing agreements
as well as another potential access point for
pirated music.
abOut the authOr
Laura Allen Phillips, Research Analyst
Laura Allen Phillips joined Parks Associates
in 2008. Since joining the research team,
she has worked in many areas, including
consumer research, home systems and
controls, security, digital health, online
entertainment, and the mobile industry.
Laura earned a BA in history from the
University of Texas at Austin.
INDuSTRY EXPERTISE: Online Entertain-
ment, Digital Health, Mobile Industry
abOut parks assOciates
Parks Associates is an internationally recognized market research and consulting company
specializing in emerging consumer technology products and services. Founded in 1986,
Parks Associates creates research capital for companies ranging from Fortune 500 to small
start-ups through market reports, primary studies, consumer research, custom research,
workshops, executive conferences, and annual service subscriptions.
The company’s expertise includes new media, digital entertainment and gaming, home
networks, Internet and television services, digital health, mobile applications and services,
consumer electronics, energy management, and home control systems and security.
Each year, Parks Associates hosts executive thought leadership conferences CONNECTIONS™,
CONNECTIONS™ Europe, and Smart Energy Summit.