Insight Wireless: the Next Frontier for the Media & Entertainment Industry
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insight Wireless: The Next Frontier for the Media & Entertainment Industry By Hamilton Sekino, Jamil Husain and Sujit Acharya Digital technology is revolutionizing the production, distribution and consumption of video games, music, television, news and other information services. Consumer preferences are migrating toward online and wireless channels. While wireless distribution captures a relatively small share of media & entertainment revenues today, we believe mobile phones are emerging as key devices for the delivery of content. Wireless media & entertainment growth will be driven by the adoption of new business models, new technology enablers and new content and applications. Diamond sees important new business opportunities in four media & entertainment industry segments—video games, music, television, and news & information. While content owners can choose from a wide range of physical and online channels, wireless distribution will depend on cooperation of the carriers. Content providers and wireless carriers must work closely and on equitable terms. Only then will they be ready to venture into the next frontier of the media & entertainment development and distribution. This report provides the rationale behind these opportunities in the wireless space and reviews the challenges media & entertainment companies will face as they pursue new opportunities in wireless channels. Introduction Media & entertainment companies are retention efforts with new and compelling already experiencing the impact of new wireless content and applications. information technologies. High-speed Internet Media & entertainment companies will is behind the growth of new forms of content benefit as well. Large producers of traditional, such as Massive Multiplayer Online Games physically-distributed content (e.g. record (MMOGs) (e.g. World of Warcraft), single- labels, TV studios and newspapers) are song music downloads (e.g. iTunes) and user- struggling to boost their revenues as new generated videos (e.g. YouTube). Meanwhile, entrants (e.g. iTunes, YouTube and Craigslist) emerging mobile data networks (and enabled find new ways to use online channels to handsets) have contributed to the adoption capture a share of content revenues. For of new forms of wireless content such as 3D media & entertainment companies, wireless games and polyphonic ringtones. Wireless represents a new channel to which they can may acquire an even more important role as directly market their content and services. Slingbox and other “place-shifting” products and services enable users to transfer content Diamond believes that several specific from physical and online channels to their initiatives hold the key to accelerating the mobile phones. Such technologies will help growth of wireless media & entertainment alter consumer perceptions of mobile phones revenues. In this paper, we identify three as important media consumption devices. important questions that wireless carriers Wireless carriers and media & entertainment and media & entertainment companies companies can seize these evolving must address. preferences to create new revenue streams. • How does the wireless value chain Wireless carriers can leverage these function for each media & entertainment table of contents evolving preferences to create profitable industry segment? Introduction . .2 new business opportunities at a time when mobile penetration in the US is near its • What are the new business models, Market Assessment . 3 peak. Revenue growth from voice services technology enablers and content & Growth Opportunities . .9 is declining, and although revenues from applications that will accelerate adoption of Implications . 15 data services continue to rise, carriers still wireless media & entertainment content? need to look for new growth areas to offset About the Firm . 17 • What are the priority initiatives of voice revenue losses. Additionally, carriers About the Authors . 17 media & entertainment companies and should make an effort to support customer wireless carriers? For more information contact: Hamilton Sekino, Partner Telecom & High Tech Practice [email protected] 2 Market The total size of the US media & entertainment distribution (Figure 2). Content production Assessment industry, as defined to include video games, includes content development (creation music, television and news & information, of content) and publishing (financing and was $207 billion in 2005 (Figure 1). Content production of content). Designing video producers depend primarily on physical games, recording music, scripting TV shows, channels, although online and wireless and reporting news are in the domain of channels are becoming increasingly relevant content developers, while financing and for all four industries. Major brands that production are in the portfolio of publishers. cater specifically to the online and wireless These companies include video game channels are emerging in each industry. publishers such as Electronic Arts, record Examples include World of Warcraft and labels such as Universal Music, TV studios Second Life (video games), iTunes and such as NBC Universal and news agencies Rhapsody (music), YouTube (television) and such as Reuters or the Tribune Company. Salon, Craigslist and blogs of every color The second half of the value chain comprises and stripe (news & information). the three steps of aggregation (organization We analyze the structure of the media & and/or licensing of content), platform delivery entertainment industry by looking at its (use of platforms or hardware to enable value chain, which can be divided into two content delivery) and distribution (delivery segments: content production and content of content to end-users). The significance Current State of the Media & Entertainment Industry US Media & Entertainment Industry Revenue—2005 Wireless Online Physical $.6B $.4B $.06B $.05B 100% $3.3B $.7B $1.5B $.8B 80% 60% 40% $7B $11B $126B $57B 20% 0% $8B $12B $127B $60B Video Music TV News & Games Information Sources: PwC, IDC, Juniper Research, MMA, Yankee Group, Ovum Research, Diamond analysis Figure 1 3 of aggregation and platform delivery varies Most of revenues the revenues that flow revenues include commercials on television, according to the structure of content into the media & entertainment industry ads in print publications, and online search ownership in each segment of the media value chain originate from one of three major and banner ads. & entertainment industry. The purchase sources—one-time purchases by end-users, In the next part of this section, we take a of third-party content by Web portals for ongoing subscriptions by end-users, or deeper look into each of the four media distribution to their viewers, or the acquisition advertisements by third parties competing & entertainment industry segments that we of syndicated content by TV stations, are for the attention of content users. One-time describe in this paper. (We only focus on both examples of content aggregation, purchases apply to the vast majority of those segments with the greatest potential while the coding of songs to MP3 format video game sales and are also an important for monetization over wireless channels. or the manufacture of video game consoles contributor to music and print news media Segments such as movies and radio are represent different types of platform delivery. sales. Subscriptions apply best to cable therefore excluded from consideration). We Distribution is universally important. Examples or satellite television and newspapers or describe the total revenue amount of physical, of distributed content include video games magazines, although new business models, online and wireless-distributed content. at Wal-Mart, MP3 files on iTunes, TV programs such as Rhapsody’s MP3 subscription We also analyze the value chains for each of on CBS and Associated Press articles service, are emerging in the music industry. these channels and identify key players. published in local newspapers. Advertising is the one important stream not fed directly by consumers. Advertisement Media & Entertainment Industry Value Chain Media & Entertainment Industry Value Chain Content Producers Content Distributors Content Content Platform Developers Publishers Aggregators Delivery Distributors • Design and develop •Finance content • Aggregate media •Provide technical • Deliver content to content development content capability to deliver consumer via either • Exist as either • Market finished •Own or license content content to consumer retail, subscription, or independent entities products libraries •Produce software/ advertising models or housed within •Maintain ownership •Prepare content for hardware delivery larger media enterprise of content delivery to consumers solutions Video Games Physical Music e Onlin TV & less re Info Wi News Figure 2 4 Video Games Online games are downloaded to Wireless games are developed by game The US video game industry was worth PCs and are typically played over the developers and publishers and marketed to about $8 billion in 2005 (Figure 3). Physical Web or through proprietary software carriers for distribution. Carriers tend games (console and PC) account for the of the game developer. Online games range to prepare content for delivery by using either bulk of revenues, although the share of online between simple, casual games such as Sun’s Java-based or Qualcomm’s BREW and wireless games is growing. poker or chess, found on sites such as Yahoo! wireless content platforms.