Taking Digital Music To The Mainstream: The Music Product Features For The Living Room

[Posted by Mark Mulligan]

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What is interesting in the current scramble for the killer online music business model is that there is an implicit assumption that the only place people would want to go from the CD is online or mobile.  The iPod heralded a new paradigm in music consumption, but it has done little to counter the impact of the CD's terminal decline and may even have helped accelerate it.

 

As things currently stand, the mass market music consumer isn’t being catered to with any form of new product and the fight for these consumers’ living room is being lost.  It wasn't too long ago that the home hi-fi system was the flagship piece of living-room technology but over the past decade, living-room tech spending has shifted firmly to the TV while the aging home hi-fi system is either gathering dust or has been replaced by a docking station. (The latter of which is an awkward attempt to make a personal device a household device, and besides, the majority of households don’t even have one).

 

The time has come for new music products and experiences that cater for the mass market and that - for the non-tech savvy majority - bring the home music experience into the 21^st century.  In our latest report ‘Taking Digital Music To The Mainstream: The Music Product Features For The Living Room’ Forrester puts forward a vision of what we think is needed. 

 

We propose that the new mass market music experience must be explicitly part of a new hardware experience that is contemporary but highly competitively priced.  Our conceptual technology is a hard drive, midi-sized music hi-fi that with a detachable touch screen display / remote control. We argue that the new hardware must:

 

• Deliver a compelling experience even if not connected: it’s just too risky to assume that mainstream consumers will have the inclination or know-how to connect a music product to a home network, even if they have one.
• Include extensive music at point of purchase: this is, we think, the crucial element.  Mainstream consumers don’t have the appetite for another format replacement cycle, so we suggest the device should effectively replace their entire CD collection and add more, all for the cost of the device.  (And yes, we know this is light years away from where current licensing values are). And in case you didn’t notice – we just invented a new music consumption paradigm here, and a new role for retail.
• Provide the tools for baby steps into the digital world: for those consumers that do connect we propose a convenient range of digital discovery and acquisition applications to encourage consumers towards the digital arena.
• Leverage telcos: we want these devices to be affordable, but to really go mass market they probably need subsidizing by a telco e.g. a Sky Songs broadband package would include the device bundled with the router.

 

Of course there are many other ways this challenge can be met, but met it must be. Unless the music industry enters the battle for the living room, it will soon lose it — and with it the mainstream music consumer.

If you are a Forrester client and would like to discuss the report in more detail then please schedule a call with our client inquiry team.

If you are press and would like more information on the report please email Press AT Forrester DOT COM

New US Internet Access Forecast Released

[Posted by Doug Williams]

Greetings and salutations!

(Quick pop trivia quiz: What 1988 movie is that line from, and which current TV actor said it?  Answer below.)

Our new US Internet Access Forecast is complete, and I've just published a short report highlighting some of the key findings.  In particular:

• Nearly 16 million new broadband subscribers will emerge over the next five years, but more than half of those will come in the next two years. Broadband service providers have 2 years before they face a severe drought in terms of revenue growth, and thus need to prepare now for the next stage of growth.
• Fiber to the home (FTTH) subscriptions will rise from 4% today to 10% of US online households. Verizon's bet on future-proofing its network by taking fiber all the way into the consumer's home will continue to pay off, but Verizon will continue to cannibalize its own DSL subscribers along the way.
• Consumers will migrate into faster broadband speed tiers.  Some of this movement will come by choice as consumers engaged in high-bandwidth activities look for a better online experience.  But some providers will force consumers into faster speed tiers simply because they have no interest in offering slower service.
• Dial-up goes gentle into that good night.  Dramatic declines will continue over the next two years, after which the dial-up candle will continue to flicker and fade -- unless the access providers snuff it out themselves.

JupiterView clients will find more specifics in the report with regard to these subjects and some of the underlying data as well.  As always, ForecastView clients have even greater access to the nuts-and-bolts of the forecast model, as well as further details by access platform and household demographics.

(Pop trivia answer:  The movie was "Heathers," a classic yet very black comedy about high school life in suburban Ohio.  The actor? Christian Slater.)

Video Strategy: Evaluating the Online Video Platfoms

[Posted by Bobby Tulsiani]

In our first two reports in the Video Strategy series, we have detailed how online video has moved beyond the exclusive domain of media and entertainment companies. From travel to financial web sites, video is now ubiquitous across the internet. 

Our latest report, The Forrester Wave: US Online Video Platforms, goes beyond market sizing and best practices to call for online video to be managed as a product. Like any web product, be it site-search or recommendations, a company has the choice to build an internal solution or to utilize a third party solution.  In the Forrester Wave, we evaluate six vendors that offer product solutions for online video: Brightcove, Fliqz, Kaltura, Ooyala, Twistage, and VMIX. 

While the number of companies in the space is certainly larger than six, we decided to focus on a set of vendors that serve a variety of clients, regardless of size or industry.  For that reason, some vendors that primarily focus on high end media companies, such as Digitalsmiths, The Platform, or Move Networks were not included.

The space proved to be highly competitive.  Almost each of the six vendors had some strength that others could not fully match - while some led in monetization, others were stronger in distribution or user generated videos. Product managers evaluating the video platforms should carefully think about their goals and utilize our Wave tool to adapt the criteria weightings to select the right vendor for their needs.

The space is rapidly evolving with several of the vendors announcing new funding or partnerships just in the past few months. I expect online video to be even more of a focus for Forrester and myself as we move into 2010.  I look forward to hearing your thoughts, comments, and feedback on the Wave.

Stop Press: European Online Users Will Pay For Online Content

  
[Posted by Nick Thomas]

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If you’re familiar with our research this year you’ll know about the Media Meltdown. It’s when traditional media business models build around controlling the distribution of inherently scarce content are undermined by the digitization of content. Exacerbated by the recession, it’s wreaking havoc across the media space (in case you hadn’t noticed). Media companies have been very vocal in sharing their pain, while consumers have been feasting on a growing supply of free content online.

But while consumers’ reluctance to pay for online content is widely recognized, it is neither universal nor inevitable. Amid the rubble of the media meltdown, it is possible to detect a glimmer of hope for those trying to make money from the boom in online media consumption. In a recent Forrester survey, while the number of European internet users who have paid for some kind of online content is 27%, a figure that grows significantly when we include those who say they might pay in the future. When we asked people what they might pay for, the greatest prospects would appear to be music, movies and e-books, although none of these markets is anywhere near maturity.

So what will it take to convert these potential buyers? Understanding how and where current and potential buyers of movies, for example, consume media online will help consumer product strategists build a successful premium service in what is set to be a crowded marketplace in 2010. A deep catalogue, the right pricing and packaging and a great user experience are all essential components, of course. But the popularity of multitasking among online movie buyers indicates the importance of integrating both social tools and a coherent multiplatform approach to maximize the paying audience in future.

If you’re a client who wants to know what a potential paying audience for movies online is looking for, you should read my new report. And if you’re interested in how potential buyers of other services behave online, get in touch.

Why EMI's Launch of Abbey Road Live is a Peek into the Future

[Posted by Mark Mulligan]

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EMI have announced the launch of Abbey Road Live, a service that records high quality audio and video footage of live concerts and produces take away CDs, DVDs and USB sticks for concert goers.  Though this may not be as big a headline grabbing story as MSN Music’s attempt to take on Spotify, it is illustrative of an arguably much more important trend. 

 

Forrester clients and other regular readers of this blog will know that we’ve spent much of this year developing our big idea about Media Meltdown and the associated series of research documents.  (For those not up to speed see this blog post and this report and this report.)  The overly boiled down summary is that traditional media companies are having to reinvent themselves as consumers’ willingness to pay for content nosedives.  Hence 360 deals etc.

 

But why I like this EMI announcement is that it isn’t just about revenue diversification, it’s about recognizing which of its assets consumers still attach core value to an building around that.  For the music industry, live is one are where consumers still clearly attach a massive amount of value: a ticket for a U2 gig for example can work out more than ten times more expensive per minute than buying the entire back catalogue on CD.  

 

So in the context of the Media Meltdown, where online availability of content has washed away true scarcity for good, media companies need to coalesce around where consumers retain value (see chart below).

The reason that these events have value is because they are unique – their value comes from the personal experience in the here and now. The EMI Abbey Road Live venture explicitly builds upon this theme by giving consumers the ability to extend that unique experience into their homes and MP3 players.  

 

Rebuilding the media industries won’t exactly be an easy task, but what is clear is that there are vital assets that can form the basis of new, important revenue streams.  It is not so much a case of media businesses dying as of media companies building new media businesses around their core media assets.

 

This is a topic I’ll be talking about in much more length at Forrester’s forthcoming EMEA Marketing Forum in London.

 

I’ll be presenting on the 17^th November at 2.00pm on the following topic:

The Digital Transition Of Media: How Media Will Never Be The Same Again

I hope too see you there.

Marvell + E Ink: Chip Integration Means Faster eReaders, Animation

[Posted by Sarah Rotman Epps]

You may have seen the news about Marvell Technology Group, a chip-maker, integrating its chips into E Ink's display modules. This sounds very tech-y, but it has real consequences for the consumer experience of eReaders. Namely:

• It speeds up the refresh rate of the E Ink screen...One of the first things consumers notice when trying out an E Ink-based eReader is the noticeably long delay when flipping a page or taking another action like changing the text size. This is especially annoying on touch devices like the Sony Touch Edition. Consumers are used to the iPhone touch experience, and the experience they have on the Web clicking on links--if they don't get immediate feedback, they assume it's not working. Currently, the microprocessing chip operates outside the display module, which is one reason why it's so slow. Integrating the chip into the E Ink display module will speed up the refresh rate of the screen by as much as half, according to Marvell, in addition to driving down manufacturing costs.
• ...Which creates a better user experience, and enables animation and other cool stuff. In addition to being generally less annoying for consumers, integrating the chip into the display will enable animated content--not full-on video, but black-and-white animation that will be useful especially for ads. Marvell has announced that they're working with FirstPaper (the secretive company backed by Hearst) as one of their partners, and having seen their device I can attest that they put the technology to good use. Marvell has said they'll announce more partners at CES in January, including companies working on dual-screen devices that need the faster processing capability for video and Web browsing.

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Google's Music Strategy - Search to Buy

[Posted by Sonal Gandhi]

In a very democratic fashion, Google announced partnership with most of the major online music services yesterday, to allow music searchers to “find and discover” music. Check out my colleague Mark Mulligan’s post on Google’s relevance to digital music from last week. The note worthy point about Google's execution  is how carefully it nudges searchers to buy music and not just stream it for free. The two main partners, Lala and iLike, that are getting premium placement by the play button, allow only limited streaming of the song. iLike lets you stream only some songs full length for the first time. After that users can only listen to 30 second sample of the song or buy an MP3. Lala also allows one free listen per song and then offers 10 cent Web singles or full MP3s.

 

The emphasis on search to buy and not search to stream free ad-supported songs is well placed. Music industry needs a viable alternative to iTunes, especially in the light of slowing iPod sales which have been the  main driver of a la carte downloads. If anyone can pull that off its Google. Plus, the ad-supported streaming model is yet unproven. Youtube being the case in point. 

 

Yahoo has had a similar partnership with Rhapsody for streaming but converting listeners to a la carte buyers is easier to do than converting them to subscribers. Lala’s 10 cent Web single is a great value proposition especially if their iPhone app is approved. iPhone users can then have a cloud-based music experience by spending only 10 cents on the song they like. Lala’s biggest hurdle now is getting those Google searchers to register and provide their credit card information.

EA Flips For Nintendo DS: Reader Apps Tested For Portable Gaming Devices

[Posted by Sarah Rotman Epps]

Something interesting's afoot in the digital reading space. Quietly, companies are testing digital reading applications for portable gaming devices in select markets. Two developments of note:

• EA "Flips" for Nintendo DS: A reader app for Nintendo's portable gaming system, offered for now only in the UK. Aimed at 8- to 11-year-olds (a good fit for the install base of the DS). Content partnerships announced with UK book publishers Penguin and Egmont. Revenue model will be bundled downloads of multiple (6-8) titles for an a la carte price of £24.99. Interactive elements include quizzes, operated with the DS's touch screen and stylus.
• Marvel Comics and others on the Sony PSP: In August, Sony announced a digital reader app for the PSP that will launch in December in select countries (UK, US, Ireland, Australia, New Zealand and South Africa). It announced a content partnership with Marvel Comics and said there would be more content partners with comics, graphic novels, and manga publishers to come. Marvel digital comics are already available online via subscription ($10/month or $60/year). Details on the app don't say how much comics will be on the PSP.

Why is this interesting?

• The market for digital reading is much bigger than the market for dedicated eReader devices. Nintendo has sold more than 100 million DS units worldwide, and Sony has sold more than 50 million PSPs. That's a huge install base! For context, Apple has sold more than 30 million iPhones and 20 million iPod touches. The market for dedicated reading devices is much smaller--Forrester estimates that so far Amazon has sold about 1.6 million Kindles and Sony has sold less than 1 million Reader devices--but it's catalyzing a shift in consumer behavior toward digital reading across devices.
• Portable gaming systems reach a demographic that isn't served by eReaders today. As we published in a report earlier this year, the first wave of eReader adopters were older, male, high-income tech optimists, and the second wave is a slightly younger, female consumer who buys and reads a lot of books. Though there might be some gifting potential for older kids with Sony's $199 Pocket Reader, for now, these are not devices for kids. For publishers, it makes sense to reach kids on devices that kids already own, including portable gaming devices. In its Flips press release, EA notes that 2 million 8- to 11-year-olds in the UK own Nintendo DSes.

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Google Pokes Another Hole In The Navigation Business

  By Charles S. Golvin

Way back in 2001 we said that "Location Based Services" is something of a misnomer. Why? Because while there are powerful applications that are uniquely enabled by the availability of automatic, high-precision location information, their number is small. In contrast, there are orders of magnitude more applications whose value increases meaningfully when automatic location information is available — "Location Enhanced Services" is a more accurate term.

But among the small number of applications that can only function with location information, by far the one that will see the broadest adoption is navigation. Today in North America 31% of adults own some form of navigation device, dominated by the 18% who own a devoted Portable Navigation Devices (PND) from TomTom, Garmin, etc. Yet it's clear to us that, in the long term, mobile phones will be the dominant tool for real time navigation — we think this takeover will occur by 2013.

This morning Google poured some accelerant on this shift, as it announced Google Maps Navigation, extending Maps to include real time turn-by-turn directions. In their post Google rightly points out that, while Google Maps is a powerful application, its usefulness declines precipitously once you start driving. In that regard, Google Maps is not much of a direct competitor to the subscription-based navigation services like VZ Navigator that carriers offer today. Google Maps Navigation changes that, and while today the effect is barely a pinprick in the navigation revenue balloon, that hole is going to expand rapidly.

Google's announcement is no surprise, clearly real time navigation was on the roadmap for Maps and it was only a question of 'when' not 'if' — just as the question for navigation vendors like TeleNav and carriers like Sprint is not 'will Google eat into your navigation business?' but 'how will you extend navigation with additional value to compete with Google's navigation offering?'

The pace at which Google will eat into others' navigation revenue is partially under the control of carriers and platform vendors:

• Carriers must weigh tradeoffs in Android. Since Google Maps Navigation is only available on the Android platform today (and only on version 2.0), expanding the Android portfolio carries a new tradeoff. No carrier has yet chosen to release an Android phone that is not also "with Google" but that is certainly an option. To date, this has been an easier choice but now releasing an Android phone automatically kills a revenue stream that operators care about. In particular, such an application may cause Verizon some mild indigestion over its embrace of open platforms and software.
• Platform vendors must decide on accepting the Google app. Google's all about reach so it's likely that they will create versions of Google Maps Navigation for the iPhone, BlackBerry, and possibly Symbian and other platforms. It will be hard for Apple to make the same "replaces basic functionality" argument about Google Maps Navigation that it made in rejecting Google Voice. RIM, Nokia, and Microsoft will face a similar decision should Google bring the application to their platform. All will be hard pressed to find a valid reason to say no.

But it's indisputable that the value of turn-by-turn navigation is going to zero with Google's offering. It will decline slowly since Android's share is quite small. Providers of navigation solutions need to focus on the value they offer beyond what Google does. For TomTom and Garmin that includes their deeper understanding of how consumers navigate in different regions, their better hardware and accessories that contribute to a better navigation experience than what's available on phones, and bringing their solutions to existing platforms like the iPhone. In the future their challenge is extending beyond navigation to include social connections, breadcrumbs left by those social connections, and leveraging behavioral data to better make recommendations based on past, current, and future locations.

In my experience PND owners are an incredibly loyal lot who couldn't imagine switching to a phone-based solution. And those who have a system built into their car will never buy another car without one. Where do you fall on the navigation spectrum?

Will Apple soon also partner with TV service providers?

[posted by Laurence Meyer]

The time may soon come when TV service providers are also going to compete for the rights for exclusive distribution to the Apple Tablet...

There are long running rumors that Apple will soon launch a new device that will look like the iPhone but with a much bigger screen and with great capacity: the so called Apple Tablet. Whether Apple launches such a device or not, there appears to be a market opportunity for a mid sized touch screen, media focused device.  It seems that there are also lively debates around where consumers would actually fit such a new device into their daily life.

  

Well, it seems to me that an Apple Tablet-like device could constitute a very nice device for “portable TV” consumption.

Of course, one could argue that this tablet is also the perfect fit for e-book or e-news reading, as the rumor that popular brands of newspapers, magazines and book edition have been recently approached by Apple suggests.

But I can’t help myself thinking that it could be in Apple’s interest to develop partnerships with TV service providers in order to kick-off the Apple Tablet market. On their side TV service providers, and especially non-telco TV service providers, would be offered a nice alternative to DVB-H or 2.5G or 3G Mobile TV, as they could be in full control of it.  By positioning Apple Tablet as the perfect device for a completely renewed and personalized portable TV and video experience, Apple and TV service providers would for sure give pay-TV subscribers a good reason to buy the afore named tablet.

The partnership would have to be a little bit different from what it has been with mobile phone operators, as, for such partnership to produce results, a specific portable TV offering would have to be developed and associated with the Apple Tablet. The key attributes of this portable TV proposition, that would complement the fixed TV proposition of TV service providers, would consist in the device convenience and design, as well as  “editorialized video podcasting”, that would enable viewers to watch TV content while "on the move" and that would also deliver content based on the users' profiles.

We laid out in more details why and how this kind of new portable TV offerings could appeal to consumers in a report which was published in April this year and which title is“Portable TV, Not Mobile TV: Service Providers Should Brand And Sell Their Own Portable TV Devices”. Clients can access it here.