Challenges and Trends for Online Video and Music...Consumer | February 28 - March 1, 2012 links CONNECTIONS Blog Webcast—Mobile Health Digital Media Research CONNECTIONS Europe Challenges

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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.

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Digital Media Research

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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





© Parks Associates 0% 40%20%

$1 - $5 $6 - $10 $11 or more

(U.S. Broadband Households)

Consumer Willingness to Pay for Online Content Access



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,

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http://www.parksassociates.com/industry-reports#digital-media



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







0% 30%15%








$1 - $5 $6 - $10 $11 or more







some electronic

Only electronic









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.



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







0% 30%15%








$1 - $5 $6 - $10 $11 or more







some electronic

Only electronic









cOnsumer willingness tO pay fOr Online cOntent access

multiscreen sOlutiOn prOviders cOmbining cOntent prOtectiOn with OptimizatiOn







0% 30%15%








$1 - $5 $6 - $10 $11 or more







some electronic

Only electronic









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




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.


Challenges and Trends for Online Video and Music...Consumer | February 28 - March 1, 2012 links CONNECTIONS Blog Webcast—Mobile Health Digital Media Research CONNECTIONS Europe Challenges

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