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September 12, 2011
Volume XXXVI, Issue 7

The Next Four Industries to be Revolutionized by the Internet

Excerpted from ZDNet Report by Jason Hiner

While the Internet has already had a powerful democratizing effect on the world, it's far from finished in reshaping industries.

It's been 15 years since the Internet became a mainstream phenomenon and began revolutionizing modern life in so many different ways - from how we find information to how we communicate with other people to how we consume news to to how we buy books and music to how we find a compatible life partner.

Along the way, the Internet has completely upended entire industries, killing off or reducing many of the existing power brokers, removing the middle men, and ushering in new leaders - the digital powerhouses of the 21st century.

Still, it's easy to forget that, from a broader perspective, we're only in the second or third inning of the Internet. There's a lot of transformation that's waiting to happen in the years ahead. In the same way that the Internet has unleashed sweeping changes in newspapers and magazines, music sales, and book sales, there are entire industries that have been only lightly touched so far but are destined to be caught in the eye of the storm eventually. Here are four of them:

1. Movies. The movie industry has been under intense pressure over the past decade as large-screen television sets have come down in price and high definition movies have made the home experience feel more and more like a small movie theater.

However, the movie industry has been through this before. The arrival of the television, the VCR, and the DVD were all predicted to kill the movie theater at one point or another, but it never happened for two reasons - A) Going to a movie is an experience where people purposefully want to get out of the house, and B) The most anticipated films still show up in the theaters months before they come to pay-per-view, disc, and premium channels.

The latter is the most important reason why movie theaters still have such a strong business. It's all about controlling distribution of the content. That's likely to change soon. Hollywood is experimenting with the idea of selling movies directly to consumers at home (streamed over the Internet) at the same time the movies arrive in theaters.

Of course, movie studios will charge a higher fee (possibly $30). But, since many families already pay $50 or more to go to the movies and others would rather save time and watch it in the comfort of their own homes, there is definitely consumer demand for direct delivery. Thirty dollars may be too high, but this will happen eventually, and it will likely result in more people watching movies from home than traveling to a theater. Theaters won't go away, but they will likely decrease in number and turn into much more of a premium experience.

2. Healthcare. It's pretty embarrassing that in 2011 we're still talking about automating healthcare. It's an industry that thrives on the latest scientific research and cutting edge equipment to improve people's health, but can't adequately transfer patient information between healthcare providers and remains snowed under an avalanche of inefficient paperwork that drives up costs and wastes time - at least that's the case in the US.

However, the US government is trying to push for an electronic medical record (EMR) for everyone in the US by 2014. Although this latest push has already been over two years in the making, the details are still working themselves out and there are some legitimate concerns about it. Nevertheless, the move to electronic medical records - and a portable EMR that the patient (not the healthcare provider) controls - is long overdue. And, when it happens, it will not only shift the investment in healthcare dollars away from old processes and products and into a lot more IT systems, but it also has the potential to give patients more ownership of their own healthcare experience, which could have unforeseen consequences for pricing, provider choice, and provider accountability.

In short, this is a major industry game-changer waiting to happen, and not just in the ways that the politicians are yapping about (see: Memo to the health care industry: The jig is up).

3. Book publishing. Amazon has completely changed the way most people buy books, and it's done it in two ways. First, it made it fast and easy to buy books online, and at a huge discount. Because of Amazon, book-buying was one of the first things people become comfortable purchasing over the Internet. A big part of that was because Amazon offered deep discounts like the big chain stores, Barnes & Noble and Borders, but carried a much larger selection of obscure titles like many of the independent booksellers.

Second, Amazon's Kindle has popularized e-books, which takes the process of delivering paper goods completely out of the equation. Instead, the Kindle delivers electronic files over the Internet to an e-reader, tablet, or smart-phone

While this has been a revolution for consumers, the Internet has done very little to revolutionize the publishing process for books. It is still ruled by publishing houses, who serve as the gatekeepers and filters for what gets published and decide which titles deserve the most promotion (and potential sales).

However, just as it did for news publishing, the Internet is about to completely democratize the publishing process for books. The combination of e-readers, electronic audio-books, and print-on-demand have lowered the barriers to entry and made it so that authors no longer need publishing houses. They can take their work straight to the masses - or, more accurately, straight to their niche audiences, in most cases.

This completely changes the economics of book publishing for an author by making it very profitable to sell only 5,000-10,000 books. In the old publishing world, that's about the average for most books and the author makes hardly any money and the publishing house considers it unsuccessful (the big titles are responsible for most of the sales and most of the payments for authors).

In the new Internet world, there are going to be a lot more books published (as e-books) and lot more titles to sort through, but it's also going to become a much more democratic process and there will be room for more people to make a living as niche authors. The traditional publishers will morph into promotional agents for the really big titles.

4. Financial payments. It's not that financial transactions have been completely unaffected by the Internet. Stock trading has been totally revolutionized. PayPal and eBay have had a major impact on the peer-to-peer (P2P) exchange of goods between people and how they pay each other for them. Most people now use online banking to track their accounts, and a lot of them use it to pay their bills.

However, the way most people pay for stuff have been largely untouched by the Internet. Most of us still carry a wallet full of plastic cards with magnetic strips in order to connect with a merchant and tell it which account to draw from in order to pay for a purchase. That's about to change, thanks to a combination of smart-phones and the mobile Internet. In what is sometimes called the "electronic wallet" or "digital wallet," consumers will soon be able to carry all of their accounts as digital tokens in their smart-phones and then interface with a merchant to verify identity (with two-factor authentication) and choose which account to pay from.

There are lots of systems and standards that are competing for a way to make this work. Near Field Communications (NFC) is a technology that is designed for this, but it requires new chips that would have to be integrated into all future smart-phones. Visa is running digital wallet trials, but they'll want to take their traditional cut of the action. Both merchants and consumers will most likely look for a way to cut Visa (as well as MasterCard and American Express) out of the picture and find a standard transaction system that can work using existing smart-phones, which now make up 40% of all cell-phones in the US (and an even higher percentage in parts of Europe and Asia).

This phenomenon will also make it easier for small businesses to quickly and inexpensively go into business and be able to accept payments. So again, this is the Internet having another democratizing effect on modern society.

Report from CEO Marty Lafferty

Photo of CEO Marty LaffertyThe DCIA joins more than one-hundred technology executives and entrepreneurs in opposing the PROTECT IP Act ("PIPA" - S.968), a misguided bill authored by Senate Judiciary Chairman Patrick Leahy (D-VT) and previously criticized by the Center for Democracy & Technology (CDT), Electronic Frontier Foundation (EFF), leading law professors, Public Knowledge, and top Internet engineers among others.

While we fully support the objectives of upholding copyright and combating infringement, we don't believe that the current version of this bill would be effective in accomplishing either; and the dangers of collateral damage and unintended consequences, which would significantly harm many legitimate Internet-based businesses, do not justify the risks of proceeding with it.

The measure's definition of "dedicated to infringing activity" is far too vague and over-reaching, and would inevitably lead to abuse by over-zealous entertainment interests - and already has - even before the passage of S.698 in several high-profile preparatory actions outlined in the technology leaders' letter to Congress.

In our humble opinion, this measure, as drafted, should more aptly be dubbed the "PREVENT Innovation & Progress Act (PIPA)." 

We agree with Senator Ron Wyden (D-OR)'s hold on this bill and urge all industry participants also to voice their opposition now with House Judiciary Committee Chairman Lamar Smith (R-TX), who has promised to introduce a different version of the measure as soon as this month.

While Congressman Bob Goodlatte (R-VA) has pledged to make substantive changes, your input is seriously needed at this time to ensure that the worst aspects of PIPA are eliminated.

As drafted, S.968 would give any content rights-holder, through the Department of Justice (DoJ), new powers, with minimal oversight, to seize the domain names of websites merely accused of being associated with any form of copyright infringement, and further, require search engines, payment processing companies, advertising networks, and other web support-services firms to block them.

PIPA would create unwarranted concerns for such companies, sharply curtailing innovation; while not realistically deterring willful infringers who would simply migrate to anonymized platforms in order to escape its enforcement provisions.

If enacted, S.968 would result in the disruption of key aspects of Internet infrastructure, including essential security tools that are widely used today.

Interfering in the basic technological underpinnings of the Internet would be a huge disservice to all web users. Undoing the integrity of DNS, which would be a sure result of this bill, would seriously harm the private sector's ability to create secure new online services and damage the Internet itself.

The bill's private right of action provision would allow content providers to embroil technology firms in costly litigation, which could prove fatal to modestly funded start-ups, whether or not any such entertainment company accusations ultimately were justified.

Just as troubling, unlike the Digital Millennium Copyright Act (DMCA), S.968 offers no way for legitimate firms to avoid behind held liable for infringement perpetrated by third-party abusers of their web services.

Congress, in a properly balanced manner, allows Internet companies, including many small but highly innovative start-ups, to rely on protection from wrongful lawsuits under the safe harbors of the DMCA's Section 512, which correctly places the legal liability on actual infringers.

Lawful services currently abide by the notice-and-takedown regime of the DMCA; and the creation of additional, expensive, and incredibly burdensome regulations put forth in S.968 is unjustified.

The wording of the Senate measure is so loose that it would require numerous websites and neutral support-services companies alike to make costly changes to their infrastructures, based merely on accusations, and to continually face highly kinetic uncertainty about their ongoing operations.

And this would be particularly painful for companies involved in as rapidly an evolving ecosystem as the Internet.

Not to mention that Internet-based businesses, until now at least, have in recent times been the one strong and bright spot in the US' fragile economy.

As the letter from industry leaders concludes, "There are certainly challenges to succeeding as a content creator online, but the opportunities are far greater than the challenges, and the best way to address the latter is to create more of the former.

In other words, innovation in the form of more content tools, platforms, and services is the right way to address copyright infringement - while also creating new jobs and fueling economic growth." Let your voice be heard on this important matter. Share wisely, and take care.

Cloud Computing and Governance in the Digital Age

Excerpted from CIO Magazine Report by Georgina Swan

During Dreamforce in San Francisco, CA, Salesforce CEO Marc Benioff sat down with some of the leaders in the industry to talk about cloud computing and governance in the digital age. The panel included the former US federal government Chief Information Officer, Vivek Kundra

The leaders discussed best practices for cloud computing by governments and the importance of human rights. Please click here an extract of the conversation between Benioff and Kundra.

New Technology Breeds Need for Moldy Content

Excerpted from TVBlog Report by David Goetzl

There's a remarkable paradox that just continues to accelerate in the content distribution business: the new is creating huge demand for the old.

As apps and tablets and Androids continue to offer new opportunities for viewing at warp speed, "The Andy Griffith Show" and "Family Ties" may have more value now than ever.

The two moldy shows are among the select group -- along with "Cheers," "Twin Peaks," and a few others - attractive enough to prompt Netflix to pay CBS a reported $200 million for streaming rights.

Netflix, of course, needs the content to satisfy consumers enamored with their iPads and Roku boxes, a group apparently willing to settle for shows they've seen so many times before. CBS has another similar deal with Amazon Prime that includes plenty from yesteryear.

So, while content is king at media companies, a case could be made that technology is royalty for many consumers -- at least as they grow accustomed to their new toys.

An analyst report this week reinforced the value of the past to some of the world's foremost media companies. Now that Netflix and Starz have apparently broken off negotiations on renewing a deal for distribution of Sony and Disney films, Barclays Capital suggests Netflix will increasingly rely on TV shows.

Warner Bros. is in prime position to capture some of the hundreds of millions of dollars Netflix could have been paying Starz -- and not for content anywhere near as new as "Two and a Half Men," but more akin to "Wonder Woman."

The Time Warner studio has 50,000 episodes in its library culled from decades of production and "no one is media has a larger TV library," according to Barclays. Warner Bros. has a limited deal with Netflix involving "Nip/Tuck" and some other series that couldn't make it to syndication, but it could start to open the floodgates.

Warner Bros. could "potentially realize a windfall," Barclays wrote. And that's with non-exclusive deals a la CBS, which can sell "Cheers" to all comers and still place it on cable.

"Droids" are a content creator's best friend for now.

P2P Lawyer Wants to Search Every PC in the House 

Excerpted from Entertainment Law Digest Report

A file-sharing lawyer admitted this week that IP addresses don't by themselves identify someone accused of sharing copyrighted material online.

To figure out who actually shared the pornographic movie at the center of the case, lawyer Brett Gibbs of Steele Hansmeier told the judge he would need to search every computer in the subscriber's household.

EMI: There Should Be No Safe Harbors for Pre-1972 Songs 

Excerpted from Techdirt Report by Mike Masnick

Ah, desperation on the part of a major record label is so sad. Following the judge's ruling in the MP3tunes case, which protected the basic concepts of DMCA safe harbors for music lockers, EMI is now asking the judge to reconsider two key points in the ruling.

The first is whether or not the DMCA applies to pre-1972 recordings. As we've discussed in the past, sound recordings from before 1972 are not covered under federal copyright law, but a variety of (dreadful) state copyright laws.

This is, depending on how you look at things, either an accident of history, or an accurate recognition by Congress in 1909 that the Constitution does not allow Congress to let copyright cover sound recordings. Either way, the RIAA and its labels love the fact that pre-1972 recordings don't fall under federal copyright law, because it keeps songs out of the public domain for much longer - since the mass of state laws are even more ridiculous in many ways. One of the issues in the MP3Tunes case was whether or not the pre-1972 recordings were subject to DMCA safe harbor protection, and the court - quite reasonably - ruled that they were, pointing to the plain language of the law.

EMI is really upset about this and insisting that there should be no safe harbors. This lays bare the RIAA's other cynical ploy in its bag of tricks. If there are no safe harbors for pre-1972 recordings, then that would mean that the labels could go after all sorts of service providers demanding cash for actions of their users.

Someone uploaded a Beatles tune to YouTube? Well, according to the RIAA/EMI's argument, YouTube should be liable. Yeah, they're getting desperate, when their remaining playing cards include figuring out ways to shake down third parties rather than improve their business model. EMI separately argues that the court was mistaken in believing that MP3Tunes effectively disabled accounts of repeat infringers. On this point, it suggests that the court was either misled or misunderstood what MP3Tunes had done in terms of disabling accounts.

The basic argument is that MP3Tunes insisted for a while that it did not terminate accounts for infringement, but then later claimed that it did - and the court just accepted the latter argument.

Here, EMI's basic claims do read much stronger, and MP3Tunes will certainly have to explain the discrepancy in statements from company employees. Either way, as expected, this case is far from over.

China Telecom Publishes Cloud Computing Strategy for 2012

Excerpted from ChinaTechNews Report

Chinese telecom operator China Telecom has announced its eSurfing cloud computing strategy, brand, and solution, and it plans to launch eSurfing cloud devices and cloud storage products in 2012.

China Telecom established a cloud computing project team in 2009 and the company has completed tests in Shanghai, Guangdong, Guangxi, and Jiangxi. According to Yang Jie, Vice General Manager of China Telecom, the data center is the core for the scale development of cloud computing.

At present, China Telecom has 300 cloud computing rooms, covering a total area of ten million square meters. For the cloud application sector, Yang said China Telecom's cloud devices and cloud storage products have been put into commercial trial. The formal operation is expected to be started at the beginning of 2012.

Yang also said that network capacity is the foundation for the scale development of cloud computing. At the beginning of 2011, China Telecom launched a project to promote the access of optical fiber network. For network coverage, China Telecom has deployed its network in 342 cities and 2,055 counties, and 90% of villages and towns in China.

China Telecom started transforming from a traditional telecom operator into a comprehensive information service provider. By the end of 2010, revenue from the non-voice sector had accounted for over 50% of the total revenue of China Telecom.

In 2011, the company further raised a new concept, hoping to become the leader of intelligent channels, the provider of comprehensive platforms, and the participant of content and applications.

In regards to the transformation of China Telecom, Shang Bing, Vice Minister of Ministry of Industry and Information Technology of China and former Party Secretary of China Telecom, said that the launch of the eSurfing cloud computing strategy marks the beginning for China Telecom's new transformation. The ministry is also formulating guidance for the development of cloud computing, aiming to reduce repeated construction and to promote the development of the industry.

Strong Growth in Cloud Computing in Norway

Use of cloud computing in Norway has more than doubled over the last year. More than 35% of public sector bodies and private sector companies now use software-as-a-service (SaaS), as compared to just 14% this time last year. These findings come from the 'IT in Practice' survey carried out by Ramboll in collaboration with EDB ErgoGroup.

"The last 12 months have seen growth that has outstripped many people's expectation by a surprisingly wide margin. Even so, there are still many barriers and challenges that have so far prevented the majority of users from taking advantage of cloud computing", comments Terje Mjos, CEO of EDB ErgoGroup.

He goes on to identify control over the user's own data and integration as the main issues when private sector companies and public sector organizations first consider using cloud computing.

"The way the authorities go about regulating the cloud arena, including issues such as information security, will play an important role in setting the parameters by which we operate as a supplier", explains Mjos, who mentions that recent developments in Denmark, where the Council for Greater IT Security has advised the public sector against using cloud computing, have also sparked a debate in Norway.

SaaS is the most used aspect of cloud computing, while platform-as-a-service (PaaS) and infrastructure-as-a-service (IaaS) are only used to a lesser extent. 14% of respondents said that they were using PaaS, while 13% were using IaaS.

"The threshold for using software as a service is significantly lower because this can be used on a stand-alone basis or be restricted to particular areas of service. It takes a very high level of technological maturity combined with a comprehensive and well thought through outsourcing strategy before an organization is ready to use cloud computing for major parts of its platforms and infrastructure", explains Mjos.

The highest levels of usage for cloud computing are seen in the private sector, but usage in the public sector is also growing strongly. 33% of the public sector organizations in the survey reported using software as a service, up from just 11% a year ago. Private sector usage showed an increase from 17% last year to 38% this year. 14% of public sector respondents and 19% of private-sector respondents said that they intended to start using software as a service over the course of the next three years.

"In order for growth to continue at the pace we have seen over the last year, it is essential that the IT industry succeeds in creating greater confidence in the technology, and is able to demonstrate successful examples of cloud-based deliveries", says Mjos, who adds: "An important factor for success in the Norwegian market will be for suppliers to operate the cloud locally so that customers' data remains in Norway. At the same time, a well-documented history of expertise in secure and reliable data storage will be key to winning customers' trust".

Maintaining control over data and security to prevent data being compromised by third parties represent an important challenge for suppliers of cloud computing. 91% of public sector respondents and 83% of private-sector respondents identified this as the most important factor in deciding whether to use cloud computing.

"Suppliers of cloud computing must be able to reassure their customers that the supplier has the expertise needed to use software and virtualization to establish watertight walls between different businesses in the cloud, and that the supplier can implement user management and access control that is 100% reliable. Users want to be reassured that cloud computing is secure and reliable. Storms in the cloud will keep users indoors, where they are today", explains Mjos, who adds: "Many customers will need extensive assistance to position themselves in a cloud computing world, and this means that IT consultants will increasingly become a kind of IT weather forecaster. This is something that we call 'Cloud Consulting', and we see this area becoming ever more important as time goes on".

Cloud computing has emerged as a new trend for delivery of IT services over recent years. "Cloud computing refers to hosting everything from data processing and data storage through to software on servers in external server parks linked to the Internet. Server parks used for cloud computing are designed to be dynamically scalable to respond to changing capacity demand, and users are normally charged on the basis of actual use." (translation from Wikipedia Norway).

IT in Practice 2011 is based on a questionnaire survey of the 500 largest private sector companies and public sector bodies in Norway. The survey was carried out by Ramboll Management Consulting in collaboration with EDB ErgoGroup, the largest IT services company in Norway.

Spain's Prisa TV Selects Level 3 for Streaming

Excerpted from Broadcasting & Cable Report by George Winslow

In another sign of the growing importance of multiplatform delivery for European TV industry, Spain's leading multichannel provider Prisa TV is using Level 3 Communications' content delivery network (CDN) services for live online streaming of 20 channels to PC, iPhone and iPad users in Spain. 

"We want our viewers to have access to their favorite programs wherever they are," said Jose Amselem, Communications Director, Prisa TV. "Level 3 has the network capacity, the right technical tools and a team with the acknowledged industry expertise that we know we can trust to help us deliver our programming to viewers when, where and how they want it." 

Level 3 will provide its live adaptive publishing solution (AOS) to support the delivery of the channels over Level 3's CDN platform. 

Level 3 will also use its HTTP adaptive bit rate streaming solution, which is designed to provide high-quality video streaming, regardless of the user's connection speed.

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The Summer of our Discontent: How Web TV Has Changed 

Excerpted from GigaOM Report by Ryan Lawler

The unofficial end of summer has passed with the Labor Day weekend, and with it goes a three-month stretch of bad news for online video viewers:

Netflix announced and implemented a new pricing plan that increases the cost of DVD and streaming by as much as 60 percent.

Starz walked away from contract negotiations with Netflix to renew its streaming deal, and its content will disappear after Feb. 28 next year.

Hulu was put up for sale after receiving an unsolicited bid, and the possibility of an acquisition has raised serious questions about its business model.

Meanwhile, Fox has implemented an eight-day window on Hulu and its own network site for viewers who aren't subscribers to one of its pay TV distribution partners.

In other words, the summer has marked a major pullback in the amount of content that is available, as well as a major change in the way it's licensed, priced, accessed and paid for. But more importantly, it shows that traditional media companies have moved past experimentation mode and are finally formalizing business models around digital distribution.

The empire strikes back.

If the past few years of success by upstart digital distributors like YouTube, Netflix and Hulu represented Act One in the story of how content moved online, we're clearly moving into a second phase, where the incumbents assert their power and launch their own attacks in the battle for consumers' attention.

For TV programmers, the main weapon in the fight has been TV Everywhere. The idea is that cable subscribers can watch streaming on demand content, so long as they log in and prove that they pay for the network that they're trying to access. This has proven highly successful for networks like HBO, which has seen millions of downloads for its HBO Go iPad app.

While originally introduced to provide more value to cable subscribers by putting previously unavailable content online, the model is now being emulated by the broadcast networks. The first to do so is Fox, which is now requiring a pay TV login for next-day access to new episodes of its shows on Hulu and Fox.com. But ABC is also reportedly interested in doing the same, and other broadcasters are sure to follow.

Of course, when applied to cable shows, the TV Everywhere model has the effect of providing more value to paying customers. But for broadcast content, authentication ends up taking away access to shows that were previously available for free on an ad-supported basis. The issue is further complicated when not all distributors are on board, as is the case with Fox. Of all the pay TV operators, only Dish Network has committed to enabling authenticated access to Fox shows online - which means that the vast majority of cable and satellite customers today are no better off than those who don't pay for TV.

The changing economics of digital content.

At the same time that content players like Fox are building walls around their newest content, they're also making it increasingly more expensive to license for digital distribution. The best example of this is Starz, which originally struck a three-year deal with Netflix pegged at around $25 to $30 million a year. Last week, it reportedly turned down $300 million a year for the same content.

Not only does the Starz example show how much more expensive streaming licenses have become in a very short period of time, but it also highlights a general pullback in the willingness of networks to make their content available online.

There's a fear among Wall Street types that this increase in the cost of content will ultimately undermine the Netflix model - that Starz is just the first of many content providers that will demand more than Netflix and other online distributors are willing to pay. Unable to provide a compelling content package, these distributors will see their subscribers flee.

Netflix as modern-day cable network.

What these fears overlook, however, is that Netflix has never been about providing the newest releases or most popular Hollywood movies. In a statement after the Starz non-renewal, Netflix CEO Reed Hastings reported that Starz content makes up just 6 percent of all viewing on it's streaming service.

That's because viewers don't necessarily log into Netflix looking for a certain piece of content - about 60 percent of all Netflix viewing comes from click-throughs on movies that are recommended to subscribers. Even if Netflix isn't able to offer up the latest release from Disney or Sony pictures, it will be able to recommend something they might want to watch instead.

In many ways, the Netflix model and content catalog isn't terribly different from what you might expect to have seen on cable a few years ago. Netflix is no HBO, but it might be TBS: the channel that catches your attention when there's nothing else good on TV. Let's not forget: Basic cable networks survived, and even thrived, on old movies and syndicated TV shows long before they began making award-winning original programming of their own.

Digital revenues finally matter.

Content producers and online distributors increasingly have a symbiotic relationship; on their earnings calls, executives from CBS, Disney and Viacom all acknowledged that revenues from digital licenses were providing a boost to their top and bottom lines. The amount that Netflix, Amazon, Hulu and others are contributing is still small relative to their overall businesses, but it's finally real revenue, not the digital pennies that then-NBC chief Jeff Zucker famously lamented just a few years ago.

Furthermore, there are now more digital licensees than ever. Netflix has grown large enough to spend billions of dollars a year on streaming rights. Amazon is investing heavily to grow its own streaming library and compete with Netflix. Meanwhile, Dish Network and Apple - which have stood on the sidelines while others grew their subscription video-on-demand businesses - are both rumored to be rolling out their own Netflix competitors soon.

The big knock against online distributors to this point has been that they potentially cannibalize viewership from more traditional channels, but without paying the same in revenues. There's still an imbalance in the amount of money online distributors contribute, but as DVD sales and broadcast ratings decline, it would be foolish for the content companies to destroy new nascent competitors that provide an important new revenue stream.

More choices, not fewer.

There's a tendency to question the viability of digital video providers, given the general pullback that we're seeing from the networks. But this type of short-term view overlooks the fact that viewers have more content choices now than at any other point in the past.

It's not like 30 years ago, when the local cable company was the only game in town, or 15 years ago, when satellite finally provided a viable alternative, or even five years ago, when AT&T and Verizon began offering up competitive IPTV services. The emergence of online distributors are creating even greater competition for viewer attention - and they're doing so at competitive prices.

Netflix, Hulu, Amazon Prime Instant Videos, and other subscription video-on-demand service might not have all the same content that is available on broadcast, cable or satellite TV, but they're not supposed to have it all. Their value proposition comes from providing a wide range of TV shows and movies, and a smart way to find new content of interest. And more entrants will soon emerge, soon offering up even more choice.

So what does the future hold?

Online viewers might lament the disappearance of certain TV shows and movies from their online destinations today, but the trend looks temporary to me. As more subscription and ad dollars move online, more premium broadcast and cable content will follow. The latest pullback, then, seems a minor bump in the road to an otherwise broader array of content available online.

More importantly, the success of digital distribution platforms means new and different content to choose from, beyond just what is syndicated and re-broadcast from network television. Hulu has been showing web originals for some time, and looks like it will continue to do so. Netflix made headlines when it announced it would exclusively license the Kevin Spacey-David Fincher series "House of Cards" to run on its streaming service instead of pay TV channels like HBO or Showtime. And YouTube is quietly building an empire of web original content, which it is expected to program into channels - basically building the online equivalent of a 21st century cable company.

In short, as viewers increasingly move online, there will be no shortage of content to choose from. In the same way that cable networks came into their own despite costs associated with syndicating broadcast content, Netflix, YouTube, Amazon and others will continue to grow - and continue to offer an alternative to the incumbent production and distribution networks.

Even as Old Media Push Back, TV Viewers Still Flock to the Web

Excerpted from ReadWriteWeb Report by John Titlow

More people are turning to the Internet to watch television shows rather than tuning into the original broadcast, according to a study conducted by Ericsson ConsumerLab. Forty-four percent of respondents said they stream TV shows online more than once per week.

While this is by no means a new development, the trend is continuing unabated as more consumers depend on web-based, on-demand streaming as their primary means of viewing TV content and broadcast's popularity drops ever-so-slowly.

However eager consumers may be to watch TV online, networks and content providers have lately been having second thoughts about the whole thing. Last month, Fox implemented an eight-day waiting period for viewers to endure before they'll be able to stream Fox's programming online for free. Now ABC is considering a similar move.

Tensions between traditional content providers and the Internet companies that seek to alter the way that content is distributed appear to be heightening. Just yesterday, Starz Entertainment announced it wouldn't renew its licensing deal with Netflix, reportedly over the latter's refusal to raise its subscription rates even more than it already has.

It's worth noting that even as users flock to the Internet for their TV needs, broadcast still commands the vast majority of viewers' attention. According to Ericsson's survey, scheduled broadcast TV was the preferred viewing method for 88% of consumers surveyed, a four-point drop from last year.

However they're getting it, people are increasingly supplementing the TV-watching experience with social media. Forty percent of viewers said they use Facebook, Twitter or some other social networking tool to discuss TV shows as they watch.

"This communication adds another dimension to the TV experience, as consumers found an annoying reality show funnier when they were able to comment on social media about 'terrible' singers, 'ugly' clothing or when your favorite team scores a goal," said Anders Erlandsson, Senior Advisor at Ericsson ConsumerLab.

The growth of both social networking and mobile computing (including tablets) have contributed to a rise in the use of social media to augment TV consumption, especially among younger generations, who have grown up connected and are accustomed to using the Internet for social communication around the clock.

The social web's impact on television can be seen in the rise of "second screen" social TV apps and in the development of Internet-connected TV sets, one of which is rumored to be coming from Apple sometime next year.

Even as the Internet upends traditional media business models, it's possible that the real-time, social Web may help preserve the value of the original broadcast, since those conversations are best had when a given TV show first airs. It's harder to have a Twitter chat with friends about the latest episode of "Glee" when you're watching in on Hulu eight days later.

TV Rivals: Videogames, DVDs on Rise

Excerpted from Media Daily News Report by Wayne Friedman

Alternative devices for viewing TV/entertainment content have been growing - but nowhere has this gain been more evident than with videogame devices.

Knowledge Networks says that in 2011, playback/recorded content via videogame devices amounts to 12% of all 13-to-54-year-olds who watch streamed or downloaded TV programs or movies through a videogame system at least once a month.

The biggest category for alternative TV viewing, according to the survey, is DVDs - which register 60%, slightly down from the 2010 total of 62%. DVR content, the second-largest category - increased to 36% from 34%. Streaming video over a PC rose to 24% from 20%. Video-on-Demand (VoD) services followed, grabbing 20% from its previous number of 17%. Blu-Ray usage was also up 14%, from 8%.

Netflix also continues to see big growing numbers. Forty-nine percent of its current customer base have used the service in less than a year. The service has around 22 million subscribers.

The study says 46% of all 13-to-54-year-olds have used Netflix at least once, with 35% watching at least one TV or movie on a monthly basis. Fify-two percent of Netflix customers are between 13 and 31; 46% are 32 to 45; and 35% are 46 to 54 years old.

Concerning new technology and Netflix, 11% of its broad swath of consumers 13-64 have used the service via mobile device. The biggest use here comes from its 13-31 customers, at 17%. Older boomers have only used Netflix via a mobile device at a 3% rate.

Nielsen Brings TV Metrics to Online Ads

Excerpted from Media Daily News Report by David Goetzl

Nielsen said its new service - which looks to bring TV-style measurement to online advertising, including video - has received a stamp of approval from the Media Rating Council. Tabbed Online Campaign Ratings, Disney networks, Facebook, GroupM, and Starcom MediaVest are among the clients using it.

The system - which been in test for some time and was announced in September 2010 - hit the market August 15th, meaning that MRC accreditation largely parallels the launch. Nielsen has launched products that have received wide use, such as the TV C3 metric, well before MRC offered its verdict.

The Online Campaign Ratings seek to provide overnight data on online audience reach, frequency and gross rating points. Demographic data is attached.

The service melds data collected from Nielsen's traditional TV and online panel with demographic information provided by online data providers.

Steve Hasker, President, Media Product and Advertiser Solutions, Nielsen, stated that the ratings system would supply "the trusted metrics needed to prove the true value of advertising on a site, in terms that are familiar to brand marketers and comparable to other media."

Advertisers are intrigued by the prospect of using the online data in conjunction with TV ratings to get a fuller picture of cross-media measurement.

GroupM's Lyle Schwartz stated that the new streams allow "the ability to analyze consistent multiscreen metrics ... with valuable insights into the value of online advertising and its role in the communications spectrum."

MRC is a nonprofit that seeks to ensure industry measurement systems are reliable and effective.

QTRAX Is Back (Again)

Excerpted from Music Ally Report

The NY Times has a long profile piece on QTRAX, the ad-supported music downloads company that has spent the last three years struggling to recover from its premature launch announcement at Midem 2008.

In the interview, CEO Allan Klepfisz says the company now has short-term licensing agreements with Sony Music, EMI, and Universal Music, although he admits they will all need to be renewed this year.

QTRAX currently has 2.5 million tracks available to download, but hopes to have between 5-10 million by the end of the year.

Meanwhile, the company still faces several lawsuits from technology and business partners: "We didn't have the money" to settle before, says Klepfisz. The company has launched in 11 countries, but its advertising income is not coming from big brand deals, but from Google, Yahoo, and other ad networks.

Coming Events of Interest

TransmitCHINA Talks - September 14th-16th at the Great Wall of China. International leaders, thinkers, innovators, and creators will have an exclusive opportunity to hear a cross-section of preeminent thought leaders from some of the world's most innovative organizations in the digital and creative content ecosystem.

NY Games Conference - September 21st-22nd in New York, NY. The most influential decision-makers in the digital media industry gather at this event, now in its third year, to network, do deals, and share ideas about the future of games and connected entertainment. Lively debate on timely cutting-edge business topics.

OMMA Global - September 26th-27th in New York, NY. The semi-annual gathering of MediaPost insiders featuring the most up-to-the-minute news, information, and ideas about the hottest online sectors - mobile, social, video, direct, display - presented for easy access and consumption.

Digital Music Forum West - October 5th-6th in Los Angeles. CA. Top music, technology, and policy leaders come together for high-level discussions and debate, intimate meetings, and unrivaled networking about the future of digital music. Digital Music Forum is known worldwide.

Digital Hollywood Fall - October 17th-20th in Marina del Rey, CA. Digital Hollywood (DH), the premier entertainment and technology conference in the country, once again welcomes the Variety Summit, which has been co-located with its past three DH events.

Future of Film Summit - November 7th-8th in Los Angeles, CA. An exclusive group of industry thought-leaders discuss the current state of the industry, and how film and transmedia deals will be struck in the coming years. This is a unique opportunity for creatives, producers, buyers, and film financiers.

Streaming Media West - November 8th-9th in Los Angeles, CA. Attended by more than 2,500 executives last year, SMW covers the entire online video ecosystem from content creation and management, to monetization and distribution. The number-one place to come see, learn, and discuss what is taking place with all forms of online video business models and technology.

World Telecom Summit 2011 - November 9th-11th in Singapore. The 2011 program will focus on topics that demonstrate innovation across the telecommunications industry, both on a commercial and technical level, to improve profitability and quality of next generation technologies and customer experiences.

Future of Television - November 17th-18th in New York, NY. Top television and digital media industry executives discuss the increasing importance digital media for the future of the television industry. Topics include viewer trends; programming for non-traditional platforms including online video, VoD, HD, IPTV, broadband and mobile.

Copyright 2008 Distributed Computing Industry Association
This page last updated September 19, 2011
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