Extending Entertainment Brands into the Digital Space

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Extending Entertainment Brandsinto the Digital SpaceMay 2004

A Strategic Studyby Claudio Cocorocchia




http://www.e-consultancy.com/publications/entertainment-brands/





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About the Author: Claudio Cocorocchia

Profile:

• Head of Licensing & Marketing, Sorrent Europe! Sorrent (www.sorrent.com) is a leading creator and publisher of stand alone and connected

interactive entertainment for wireless & Internet-capable devices. Claudio is helping build theirinternational presence by leading their licensing, marketing and PR functions for EMEA.

• Business Development, Sony Pictures Entertainment! 2 years of business development, licensing and marketing in digital entertainment at Sony

Pictures Entertainment. Claudio co-managed the international expansion of Sony’s digitalpractice, concentrating primarily on the European wireless market.

• Consultant

! 6 years in Management Consulting at large management consultants and independentconsulting assignements

• International Experience! Worked in North America, Italy, France, UK

Contact Claudio at: [email protected]

http://www.sorrent.com/

http://www.sorrent.com/



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Introduction

The entertainment industry is currently experiencing a digital revolution as many new mediaplatforms are quickly becoming as significant entertainment vehicles as television, film or radio.Yet these digital channels will differ from the classic media: they are evolving there own businessarrangements, usage patterns and social dynamics. Where established media are packaged andprogrammed into well-defined distribution channels, the next media will thrive on personalization,personal feedback loops, and boundary blurring.

Currently, young technically-aware people are using various digital platforms as their primarycommunication and entertainment tool. The below figure shows that 2 out of the 3 most popularmedia for entertainment (for younger consumers) can be considered as digital or “secondary”entertainment delivery channels.

Preferred entertainment medium

Taken from Alcatel Telecommunications Review – 2nd Qrtr 2003

Not only do these young consumers buyhigh tech products themselves, but theyalso often drive the buying decisions of theirparents.

Significant opportunities therefore exist forentertainment companies in the areas ofonline & wireless music, gaming, video-on-demand, digital picture transfer and otherservices and products enabled andenriched by digital content.



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Introduction (Continued)

This study discusses the revenue potential of digital media and argues that entertainmentcompanies, also referred to as content providers, can invest more time and money into digitalcontent. As outlined in the previous slide, end users are becoming more tech savvy in theirchoices for entertainment including a desire to access it via more interactive applications andplatforms when they want and how they want.

Some content providers have already invested in different technologies to extend their

entertainment brands including mobile and portable media devices, broadband connected homenetworks (wired and wireless), HDTV technology and personal video recorders (PVRs), but manyentertainment companies have taken the “followers” approach, waiting for more success storiesbefore deciding to invest time, capital and resources to the digital cause. For these players, it maybe already too late to take a leadership position in the digital entertainment race.

Over the past 5 years new media revenue streams from entertainment brands have been limitedto certain application formats:

Digital games (narrowband on-line, DVD based, console and PC based) including simplifiedpay to play formats,

Wireless content (images, games and ringtones for download to handsets),

Interactive polling/voting via SMS (wireless interactivity), IVR and teletext.Good examples of some success stories include Channel 4’s Big Brother , which in its first seasongenerated more than £2m of revenue from votes being cast to evict a member of the house ANDSony Picture Digital’s Wheel of Fortune , which has generated millions of dollars in wireless andinternet revenue from digital versions of the game, with a loyal & paying monthly subscriber base






Introduction (Continued)

These recent successes have proved that new media revenue streams have real potential forentertainment companies and with the maturing of the wireless market, and the beginning of thebroadband age, digital platforms will most likely develop into the most important entertainmentvehicles.

The future digital entertainment markets will take much of what has already been successful andgrow it via technological innovation and changing consumer preferences. This study will focus on

the following 3 main media for delivering entertainment applications:

Wireless content delivered on personal handheld devices,

Broadband delivery of content on PC’s and TV’s,

Embedded PC delivered content.

This study outlines each of these platforms, discuss entertainment applications with the greatestpopularity and revenue potential, and attempt to shed light on some strategies to enter into thesenew entertainment spaces. Essentially, this study can serve as a guide on how to effectivelyextend the reach of many entertainment brands via digital content.

This study is designed to appeal to entertainment brand owners beginning to grow their newmedia groups and to current players with established digital practices, “digital pioneers”, looking to

continue their growth in the area; however, service providers and industry investors may also findmuch of its contents useful.






Table of Contents

1. Complementing vs. cannibalizing key distribution businesses –Strategies for entertainment companies.

2. The integrity issue – How risky is digital entertainment tointellectual property rights management and the overall qualityof the consumer experience?

3. The different digital media for branded entertainment:

I. Wireless / Mobile

II. Broad & Narrowband internet

III. Embedded PC applications (OEM)

IV. Other (Interactive TV, teletext and In Flight)

4. Strategies to effectively capitalize on brands in the digital space

5. Case study examples of successful digital content providers:

I. Sony Pictures Entertainment

II. Celador International

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Slides 64 to 83

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Cannibalize or Complement*?As new technologies and new media for exploiting entertainment brands are introduced, the

content community always faces the same dilemma; how do they explore and support the rollingout of new services while maintaining the services and revenue streams that are the mainstay oftheir business. Particularly in today’s economy, and with the current piracy situation, entertainmentcompanies must be extremely focused on protecting their existing revenue, without ignoring newdistribution channels.

It is clear that digital content offered by service providers or even by entertainment companies

need to be complementary to existing (classic) distribution channels and that the lifetime revenuestreams from brands need to be incremental. But how can content providers do that successfully?

Entertainment companies that have been successful in managing brand extensions in the digitalspace have followed two main complementary strategies:

1. Additive Content (i.e., designing digital content to enrich existing formats and/or revitalize brands).2. Windowing (i.e., effectively staging the release of digital based content in symphony with otherformats and applications).

* Most content in this section was taken from a BCD Forum roundtable discussion conducted in October, 2003






Cannibalize or Complement? (Continued)

1. Additive Content:

Digital entertainment designed to extend the brand reach of the entertainment property and enrich theoverall user experience.

An example: television programs. Some have a worldwide following and are unique properties that, in somecases, have accumulate hundreds of episodes over several decades. Fans of some programs are sodedicated that they have constructed communities around the show. This is an example of an “AffinityGroup” that would benefit from content owners providing a video database that would log and track all of

the episodes and scenes, tagging them by character, plot line, and dialogue to create a service, perhaps asubscription service, where fans could cut scenes together, link episodes, dive into associated meta dataand share information with like-minded individuals and groups.

Brand owners can view this type of additive or incremental content as complementary to their standarddistribution channels (such as linear programming of episodes and DVD packages, following the aboveexample) and as a way to capitalize on the unique properties of digital platforms to create new value for the

series’ fans.A current example of this type of additive content is The National Hockey League of North America’sbroadband site: this site allows customers to purchase a subscription package to track teams, players, andstatistics, cutting them together in their own video highlights package.

Fox Entertainment is also looking at doing similar programming in the US for its owned and operatedstations by tagging sporting events with meta data and working to offer, for example, the highlights of athree hour game in twenty minutes, providing an extra value for local fans.

In each of these instances, the brand of the entertainment company is enhanced and an “incremental” or“additive” revenue stream is created; all without threatening their core distribution businesses.







1. Additive Content (Continued):

The successful integration of additive digital content is not without challenges on both a technology andbusiness front.

On the technology side, digital asset management is complicated; there are real production challenges toovercome. Creating the digital content, for example, digitizing the linear channel or program, is the easypart. Applying the meta data, segmenting by scenes and manually inputting all relevant meta dataconcerning characters, dialogue and specifics is what gets complicated. There is no off the shelf product

that can do what most entertainment companies’ marketing teams envision. Some automated tools exist,but everything needs to be customized and once the manual work is done, editorial expertise and largerdigital asset management is needed, which is a challenge for all studios and other program based contentproviders. For other additive content, such as games and digital images, the key technical challenge isseamless distribution to the end user and ensuring a painless experience. Most major brand owners, forexample, studios and channels, are “siloed” in their business units and a unified digital asset managementsystem is required to cut across those lines.

On the business side, there tends to be resistance to some additive or incremental content. In the filmindustry, the home entertainment departments rely on the “extra” content to boost sales of DVD’s and areusually reluctant to offer that content, such as exclusive interviews with actors, in other media, such as overthe internet. This introduces the importance of Windowing (see next slides). Additionally, there is a concernthat if extra (often exclusive) content is offered over the internet (or the mobile), then a DVD’s specialquality will fade, lowering its overall value proposition.

Another major issue that impacts the distribution of many types of digital entertainment, such as music, TVor film clips, is the lengthy talent approval process and the effective management of rights payments topublishers (music) and talent. Complex guilds are usually required, comprising of talent, before new mediaformats can be monetized. This often causes large delays in digital content launches and in many caseshas kept entertainment companies away from digital platforms.







2. Windowing:

Has always been, and continues to be, a large part of the strategies of entertainment companies to protectthe value of their content at different stages of distribution.

For example, a film’s distribution timeline (see figure 1 below), ensures that content is valued at each stage,with higher value generally attributed closer to the original theatrical release date.

Over time, the windows have shifted to account for new and growing technologies and businesses.

Video on demand (VOD) trails home entertainment (HE) releases, but there’s a tremendous push fromVOD operators to advance the window and make VOD available commensurate with, or even earlier than,HE (or Home Video). Some content providers move up the window on a case-by-case, title-by-title basis.Generally, it is done with titles that haven’t fared as well in HE because the perceived risk is diminished withthose titles. There is, however, an acknowledgment by content providers that the window may likely shiftagain to VOD release dates equal to or before HE, depending upon the growth of VOD as a revenuestream.

6 months

3 months







2. Windowing (continued):

As internet and wireless brand extensions become more and more realizable, a film’s future revenuestream chronology may begin to resemble the following:

Some film studios have followed the above model where 3 months before the release of the film, a title isexploited via complementary revenue generating wireless and internet based gaming content. An exampleof such a film was Sony Pictures Entertainment’s Charlie’s Angels: Full Throttle , where both an on-line andwireless game based on the film was released before the theatrical début.

Challenges facing brand owners in Windowing of new media formats include:

1. Execution (how should additive content be introduced and for how long should it be available?)

2. Resourcing. Separate project teams are utilized, which, in many cases are small and inexperienced

CHRONOLOGY (with digital content elements integrated)

Wireless content (SMS & Java games, ringtones from soundtrack, images from film, wireless chat communities, etc.)

(Includes film via broadband streaming/download)

Internet based content (on-line PC based games, multi-player internet games, on-line fan clubs with access to exclusive content, etc.)

P A I D

F R E E

Additive contentrevenue streams






A Question of Integrity

Most entertainment companies recognize the potential of digital platforms as both a marketingand distribution medium beyond compare but those in TV production, movie and musicbusinesses are reluctant to move their content onto what is currently perceived as a leaky system.Brand owners need to be sure that the integrity of their digital content will be maintained whendelivered over the distribution network.

Integrity can be viewed as having two main components:

Quality of the content at the point of useSecurity of the content as it traverses the distribution network to arrive at the consumer.

Advances in encoding techniques have reduced the bandwidth required to deliver much oftoday’s digital content, improving the quality of the entertainment experience. Games using 3dimensional technologies can now be downloaded over the air to a mobile phone in a matter ofminutes. Full length DVD quality movies can be reduced to a 700 Mbyte file in video format,

allowing for embedding on PC’s. And at least two broadcast-quality TV signals can be deliveredover a 5 Mbit/sec broadband pipe.

Piracy rates for leisure software are as high as 40% in Europe and in the US, and as much as90% in the rest of the world*; therefore, offering enhanced entertainment content such as videoclips, full length programs/films and exclusive behind the scenes interviews over digital platformshas many brand owners concerned with the risk of piracy. The digital platforms most at risk of

such rights management scares include PC based (broadband and embedded) and personalhandheld device delivered (wireless) formats.

Even with the advancement of digital rights management (DRM) on different devices, mostentertainment companies still fear the limitations of DRM and have great concerns about piracy,particularly in light of watching the revenues in the music industry steadily drop each year.

* Source: Broadband Gaming: It’s a serious business – Alcatel, 2nd Quarter 2003.






A Question of Integrity (Continued)

Additionally, the same technologies aiding in the improvement of content quality are causingsecurity concerns. Significant improvements in video and audio compression technology havefacilitated a potential digital entertainment piracy epidemic. More importantly, not much moreimprovement in codec technology is needed to bring the video-related industries to where contentcan be peer-to-peer file shared in an efficient manner. With access technologies all improvingyear after year, and improvements to the open Internet backbone, residential broadband can

provide speeds fast enough to download a full-length movie in roughly the same time as it takesto download an MP3. Similar developments are predicted for the wireless network and contentsharing on handheld portable devices.

However, broadband DSL and wireless downloading of content have one significant securityadvantage: like a fixed telephone line, these “connections” are dedicated to and unique to a singlehome or device. This not only has obvious security benefits, but can also help to deliverpersonalized services.

For producers and owners of content, the need for control of content and for high qualityapplications becomes dire. Wisely, some content providers, such as Sony, are also focused onhome networking technology and the ability to take content from a single server in a home andput it on any stereo, television, wireless device or computer, guided by certain rules of play. They

see the inevitable digital distribution of their content on all devices, and want to be proactive inmaking sure that they have a say in what the rules for that content distribution will be. Could thisbe the only real effective strategy for content providers to follow?






Wireless / Mobile - Introduction

For the purpose of this study, wireless entertainment will be defined as entertainment applications

that can be delivered over the air, or via wire, which are then stored (temporarily or permanently)on handheld devices.

Of all the digital platforms discussed in this study, wireless is the most mature of media withapproximately 5 years of evolving activity. But, it can still be considered an emerging “new” mediawith solid growth predicted as the consumer market develops and technological innovation drives

ahead.The evolution and rapid development has so far occurred mostly in Asia (principally in Japan andin South Korea). Asian markets are clearly more advanced than their western counterparts andthere is much that can be learned from Asian business models. However, many analysts andconsultants have made the error of predicting a similar path of evolution for the Western markets.

In fact, during the late 1990’s, the projected 5 year market size of the US and European wirelessentertainment market was greatly exaggerated by many. Due to social, political and culturaldifferences between Western and Asian markets, Western territories have developed at a slowerpace.

This study concentrates principally on the US and European markets with a particular emphasison the European market, since it is considered by many to be more advanced (in terms of

technological innovation and use of applications) then the North American market.







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Extending Entertainment Brands into the Digital Space