70121_DES_br:Mise enpage117.1.200718:34Page WORLD SCENARIO SERIES Executive Summary Scenarios to2015 Media andEntertainment: Convergence betweenIT, Telecoms, Digital Ecosystem IMPROVING THE STATE COMMITTED TO OF THE WORLD THE OF 70121_DES_br:Mise en page 1 17.1.2007 18:34 Page 2

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Introduction Introduction

To understand how the Digital Ecosystem could music. These creations can be original or remixed plausibly evolve in the coming 10 years, we need to from existing content. South Korea and Japan, both look at the critical uncertainties and those factors considered more mature digital markets, show very shaping the ecosystem’s evolution. high levels of involvement and growth in user- Broadband adoption, technological advances generated content and community participation and decreased operating costs have pushed the IT, (figures 1 and 2). In time, the young and highly Telecommunications and Media and Entertainment active contributors to online content will grow older and industries into a period of great flux. As they their behaviour patterns will become the standard. converge, they are forming a space we could call Increasingly we note the fertilization of the the Digital Ecosystem. traditional media by the online world. For example, This emerging Digital Ecosystem is generating user-generated content is increasingly seen on many risks and challenges for government policies, traditional media channels, such as television as well as presenting new opportunities for creating programmes and newspapers. Services are arising social and economic value. Just as any healthy eco- to facilitate this – Scoopt, for example, brokers blog system enables its stakeholders to interact to the content to news editors and takes a commission. benefit of all, a healthy Digital Ecosystem will simulta- Figure 1 South Korean young internet users actively neously enable its commercial participants to create contribute to online content economic value and deliver well-being to society. Purpose of using the Internet – South Korea, 2006 The critical uncertainties we focus on are user Home page/Blog Community empowerment, market structure, market regulation, 80 74 Intellectual Property Rights, security and privacy. 70

Percentages 60 52 48 User empowerment 50 46 40 37 Digital users are taking control of when, where and 30 25 22 20 17 how they consume digital content. They are no 20 13 12 11 14 longer mere consumers: they increasingly participate 10 3 0 in the Digital Ecosystem in other ways – as contributors Internet 6-19 20s 30s 40s 50s 60s + Users Age group to online communities and as creators and distributors Source: 2006 Informatization White Paper, National Computerization Agency, Republic of Korea of digital content and services. Communities are also being created around infrastructure development, Figure 2 Japan experiences a rapid rise in users adopting user- generated content and social networking services such as when members of a community agree to share their wireless internet access. Number of registered users of blogs and social networking services, Japan Through communities, users interact and share March 2005 March 2006 10 digital content with like-minded people and get access 8.68 8 to specialist knowledge and advice. Communities 159% 7.16 Million persons also present opportunities for opinions to crystallize. 6 545% Most are not industry-led, but rather evolve organically. 4 3.35 Their power is growing as pressure from communities increasingly often influences business decisions. 2 1.11 Increasing numbers of digital users are creating 0 Blogs Social Networking Services 2 digital content in forms such as blogs, web pages, Source: U-Japan Policy, Ministry of Internal Affairs and Communications, Japan, October 2006 photos, videos, characters in games, animations or 70121_DES_br:Mise en page 1 17.1.2007 18:34 Page 5 iia csse:Seaist 2015 to Scenarios Ecosystem: Digital Introduction

DIGITAL LEXICON

“The world was so recent that many things lacked names, and in order to indicate them it was necessary to point.” Gabriel Garcia Marquez, One Hundred Years of Solitude

Digital Ecosystem “Digital” means any data that exist in binary form. GOVERNMENTS An “ecosystem” is an interdependent and dynamic network of living organisms and their physical USERS MEDIA & environment. The “Digital Ecosystem” is the space ENTERTAINMENT formed by the convergence of the media, telecoms and IT industries. It consists of users, companies, governments and civil society, as well as the infrastructure that enables digital interactions. COMMUNICATIONS INFORMATION TECHNOLOGY Digital user Any consumer, producer and/or distributor of digital content or services, personal or business, for purposes such as communication, information, entertainment, education or civic engagement.

Digital community (or online community) A group of people who are connected online, for purposes that include communicating, sharing knowledge or exchanging content. Many communities are highly cooperative and establish their own unique culture. Contributors put in significant time for typically no monetary gain, at least at present.

Digital content Any digital information, such as music, video, text, graphics or games that can be consumed.

Digital services Any service that assists users in making the most of the digital infrastructure, such as aggregating or customizing digital content, enabling communication and supporting hardware or software products.

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Some artists and bloggers have successfully parlayed Life can make money as they keep the intellectual their digital creativity into an income producing activity property rights over content they create. Contributors or a professional career. Also we find increasing to YouTube and MTV Flux, on the other hand, give coverage in the traditional media on events and up the right to commercialize their content. A middle celebrities born and bred online, such as the FIFA way, revenue sharing, is exemplified by Revver, which Interactive World Cup 2006 and Kamini, a French distributes user-generated videos along with advertising rapper who became famous on YouTube, was and pays the creator half of the advertising revenue. signed up by a major label and received in about It is still early days for user contribution and every television show. collaboration through communities. As communities Collaboration enabled by communities, for mature, who will take the leading role in defining example wikis, remains largely a leisure activity. But their operating processes and systems: industry there is a nascent trend towards commercial online players or, through an organic process, users user collaboration, as in open source software themselves? Will industry capture more of the community projects. Platforms for user-generated economic value arising from user creativity or will content are increasingly supported by venture grassroots communities increasingly incubate capital. In the last year, many leading platforms of commercial innovation as users pool their skills user-generated content have been acquired by and resources? media giants and internet portals: Google acquired YouTube and Jotspot; Viacom acquired iFilm, Atom Market structure Films, iVillage and Quizilla.com; Yahoo acquired Players in the Digital Ecosystem are moving beyond Jumpcut, and Newscorp acquired MySpace. their traditional boundaries. Aggregation and distribution There are various models for capturing economic of content are especially hotly contested, as shown value generated by user creativity. Users of Second in figure 3.

Figure 3 Players move into adjacent activities and new players emerge

Content Delivery platforms Connectivity / Consumer devices Generation Aggregation Transport Interface Content creators move into delivery expand into platforms Device and services manufacturers Network operators enter into content creation and delivery

Cable & satellite providers enter the telephony services Portals develop content, expand into networks/WiFi/telephony Attackers deliver content via new networks Users Generated 4 Content Platform Providers Source: Based on McKinsey analysis 70121_DES_br:Mise en page 1 17.1.2007 18:34 Page 7 iia csse:Seaist 2015 to Scenarios Ecosystem: Digital Introduction

For example, content creators are implementing the US; in India under the recent government delivery platforms, and device manufacturers aggre- clampdown, companies will not be allowed to use gating digital content. Convergence services blur the unlicensed foreign VoIP providers such as Skype, lines between traditionally separate functions such Yahoo and Net2Phone. South Korea recently gave as in the case of Internet Protocol Television (IPTV) trial licenses for new IPTV network services to two bringing together network and broadcasting activities. consortia formed by key players from the telecom Convergence is also driven by new and and broadcasting industries. independent players with innovative ideas about There is also uncertainty about the strength of bringing together existing technologies to create governments’ commitment to fostering competitive- something new. This raises the question of whether ness in the Digital Ecosystem with the aim of growing established companies will be able to adapt the “knowledge economy”. Many governments proactively and quickly to changing market promote interoperability and open systems by conditions. Or, could they fail and die as innovative enforcing anti-trust regulations and adopting open businesses take over the market? source software and open standards in their own Some providers operate on open standards digital activities. and make their products and services available European public authorities are particularly active through open systems. Others use proprietary in promoting interoperability. French legislation, for systems and closed platforms. Increased business example, mandates that when digital content is cooperation could lead to more interoperability and protected by proprietary digital rights management common standards, increasing the interconnectedness technologies, providers must give other software of networks, IT platforms and devices. But it is also and hardware developers access to the necessary plausible that vertical integration will lead to partnerships technical documentation to make their systems and consortia delivering exclusive content over closed interoperable with it. Apple’s iTunes is under scrutiny systems, with proprietary networks, IT platforms and both in France and elsewhere in the EU. devices featuring interoperability only within silos. Will policy-makers and regulators be able to keep pace with emerging technological developments Market regulation and business models, and foster an open and Regulation and licensing are creating headaches for competitive digital environment? governments and uncertainty for industry. In most developed countries, broadcasting and telecoms Intellectual Property Rights (IPR) have traditionally been regulated separately, meaning Digital content is easier than analogue content that new services such as IPTV1 and VoIP2 are to share and adapt. Owners of IPR face 1 Internet Protocol Television 2 competing in the same space without being overseen difficulties in tracking and controlling how their Voice over Internet Protocol 3 Organisation for Economic 3 by the same regulators. Nine OECD countries have digital content is used, while creative users do Cooperation and Development already established single regulatory frameworks and not always find it easy to identify and trace rights institutions, and others are planning to follow suit. holders. CreativeCommons.org seeks to tackle Licensing requirements for new services and these dilemmas by enabling creators to define networks can also help to determine market structure. “some rights reserved” licenses that are more For example, a VoIP provider requires ministry flexible than the two traditional extremes of “all approval in South Korea but does not currently in rights reserved” and “public domain”. 5 70121_DES_br:Mise en page 1 17.1.2007 18:34 Page 8 iia csse:Seaist 2015 to Scenarios Ecosystem: Digital Introduction

Digital Rights Management (DRM) technologies digital content and services. Data about the behaviour are widely used to protect IPR. Many industry of a user’s online identity are used to provide them players are developing competing corporate DRM with customized services, but there are privacy platforms. Others promote global open standards dangers when the organizations who collect or such as the Digital Media Project, often with the have access to this data do not behave ethically. support of public institutions. Parental control and other filtering systems are Countries throughout the world have adhered increasingly used to protect children from harmful 4 World Intellectual Property to the WIPO4 Internet Treaties, the international digital content, amid concern about information they Organization framework for copyright in the digital environment. can access and are providing about themselves. However, IPR are determined by national laws in A majority of teens admit to doing things online that individual countries that differ both in details and their parents do not know about. in levels of enforcement. This creates uncertainty. Cross-border enforcement of laws on privacy, For example, computer software code is protected security and protection from harmful digital content by copyright, but opinion differs widely among are costly and difficult. Standards differ among national jurisdictions on whether business models jurisdictions, and to enforce national regulations enabled by software’s functionality should be requires international cooperation and human patentable. investigative resources. Furthermore, what is The Digital Ecosystem’s stakeholders need to considered to be harmful is strongly influenced by balance the interests of rights owners and the public. local values and political regimes. Will intellectual property laws be able to ensure that Are the industry and public institutions able to creators can commercialize their work and protect cooperate and build the required trust of users in it from plagiarism, while also providing a framework the Digital Ecosystem? Or, will it descend into an that encourages creativity? anarchic and uncontrolled state?

Security and privacy For the Digital Ecosystem to create an enabling framework for economic and social development, the online environment must command trust in terms of privacy, security and protection from harmful digital content. Identity theft and fraud are increasing, despite advances in technologies to protect users and transactions; in addition, public awareness of online security and privacy issues is low. Tracking techniques such as Radio Frequency Identification and location detection systems will add further to the information users already reveal about themselves through their consumption of

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xctv Summary Executive Executive Summary

The Digital Ecosystem is forming as the Information Technology, Telecommunications, and Media and Entertainment industries converge, users evolve from mere consumers to active participants, and governments face policy and regulatory challenges. Its stakeholders are questioning the shape and size it will take. They are aware of their inter-dependencies necessary to enable the Digital Ecosystem to evolve into a healthy environment that both creates economic value and adds well being to society.

The key questions for the scenarios When reflecting on the future of the Digital Ecosystem, two critical questions stand out:

1. Will social and economic value creation be industry controlled and led, or organic and community-led?

SOCIAL AND ECONOMIC VALUE CREATION IS

INDUSTRY CONTROLLED AND LED ORGANIC AND COMMUNITY-LED

• Processes and systems by which users • User and community contribution occurs contribute and communities operate are OR through independent, open platforms. defined by industry players. Members of the communities set the rules • Aggregation of products and services is for the underlying processes and systems. performed by industry players. • Aggregation of products and services • Users contribute to value creation but is performed by users and/or their most valuable digital assets are communities. commercialized by industry players. • Users and communities contribute signifi- • Innovation is mostly industry-led. cantly to value creation and successfully commercialize their products and services. • Communities are incubators for innovation through an organic process in which skills, competences and resources are pooled.

2. Will the digital business environment evolve toward a more open or closed system?

AN OPEN SYSTEM

• Interconnectedness of networks, IT platforms and devices enabled by more interoperability and common standards. • A constellation of players. • Regulatory environment that supports openness.

OR

A CLOSED SYSTEM

• Closed systems with proprietary networks, platforms and devices; interoperability within silos. • Vertical integration between content, services and conduits. • Regulatory environment that limits openness. DIGITAL BUSINESS ENVIRONMENT EVOLVES TOWARDS BUSINESS ENVIRONMENT EVOLVES DIGITAL

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Other issues are also key to how the Digital Ecosystem will evolve in the coming years: • The extent to which established companies will be able to adapt proactively and quickly to changing market conditions; • The degree to which stakeholders will cooperate – businesses amongst themselves, with users and with government – to build an ecosystem where all stakeholders can thrive; • Whether the industry and public institutions will be able to cooperate to build trust in the Digital Ecosystem and ensure the robustness of the internet infrastructure; • The level to which intellectual property rights and patents can be exercised and protected without losing the richness of incremental distributed innovation; • The intent of governments to foster market competitiveness and harmonize legal frameworks and cross-border enforcement.

Guided by these issues and key questions, three scenarios emerge for the Digital Ecosystem. The different paths for the Digital Ecosystem through to 2015 are shown in figure 4.

FFigureigure 2 .41 DigDiitalgi talEcosystem: Ecosystem: Scenar Scenarios to 2015ios to 2015 Middle Kingdoms Youniverse OPEN ENVIRONMENT CONTROLLED & SOCIAL AND ECONOMIC VALUE CREATION ORGANIC & INDUSTRY-LED COMMUNITY-LED BUSINESS

Safe Havens CLOSED

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Safe Havens Safe Havens describes a digital world in which online security concerns create a clamour from consumers, businesses and governments for virtual safe havens. Industry

iia csse:Seaist 2015 to Scenarios Ecosystem: Digital responds by vertically integrating to create secure walled environments that provide all digital services. Because they operate on closed standards, growing numbers of users start to feel constrained by the walls of their safe havens.

The scenario is written as a special, feature-length editorial by an outspoken business correspondent of an online magazine belonging to one of the vertically-integrated digital service

xctv Summary Executive providers. The author reflects upon the forces that shaped the Digital Ecosystem between 2007 and 2015.

Middle Kingdoms Middle Kingdoms describes a digital world in which consumers, governments and forward-looking businesses push for interoperability, enabling a bewilderingly wide array of niche offerings to become viable propositions – and a Digital Ecosystem dominated by intermediaries that effectively connect users to like-minded individuals and to the highly specialized suppliers that can best meet their needs. In the middle of the space between consumers and suppliers lie the kingdoms where the power lies.

The scenario is written as an official company blog of a leading intermediary in which the company founder reflects in a series of blog posts on how the Digital Ecosystem’s evolution enabled his business to grow from being a start-up in 2007 to a powerful global player in 2015.

Youniverse Youniverse describes a digital world in which the rise of organic grassroots communities as powerhouses of economic value creation turns traditional business thinking on its head. This leads to the rise of new organizational structures and to digital experiences that are highly personalized. Some companies find ways to capitalize on this distributed innovation – they survive the period of uncertainty and change to see a new day dawn in the digital world; on others the sun sets for good.

This scenario is written as extracts from a community website between 2007 and 2015. The community is set up for members of the tech-savvy young generation to discuss the Digital Ecosystem’s evolution after the website’s creator finds this scenarios document lying on her boyfriend’s kitchen table.

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2007-2008: An unstable geopolitical environment and a 2013-2015: Sophisticated young tech-savvy users, series of highly publicized breaches of data security leads to frustrated by limits on their creative freedom, step up their a sense of concern engulfing the digitized world. The public disruptive activities. Conglomerates retaliate through the demands virtual gated environments. Governments react by courts, but “Independent Online Communities” (IOCs)

de-emphasising antitrust concerns and developing close become more numerous and influential as mainstream 2015 to Scenarios Ecosystem: Digital working relationships with dominant players. Consolidation, consumers increasingly believe that industry control is too mergers, acquisitions and exclusive deals gather pace. powerful. Governments remain supportive of digital conglomerates, but are no longer so public about it. 2009–2012: Amid apparent stability, digital service conglomerates offer a broadly similar range of bundled, customized services based on proprietary platforms that lock users in. Governments gain much-needed control through cooperating with a few powerful providers in national-level regulatory forums and licensing new converged services. Less tech-savvy users appreciate advances in

convenience, privacy and stability. However, disruptive Summary Executive innovation outside the walls quietly gathers momentum.

2007-2008: Consumers demand open and interoperable 2013-2015: Stability and choice become established products and services; governments actively support open features of the digital world. The value network is organized systems and competition. This joint pressure moves the around a few large and powerful intermediaries – whose Digital Ecosystem inexorably towards more openness. This success is determined by their expertise, quality of service is a time of great dynamism, competition and and brand identity – and a fragmented market of specialized experimentation as businesses prioritize harnessing user- providers. It becomes easier to exercise intellectual property generated content and community involvement to improve rights and more consumers start to earn revenues from the development of services. industry platforms.

2009-2012: Amid a stable geopolitical environment, industry-government co-regulation establishes common standards on privacy and security. Intermediaries become the de facto leaders of the digital world as a virtuous circle emerges that mutually strengthens the need for intermediaries and the viability of niche products and services.

2007-2008: In a context of geopolitical stability and 2013-2015: A new paradigm emerges based on government support for open markets, fundamental change interoperability, open systems and common standards. is underway in the Digital Ecosystem. There is an unstoppable The line between users and producers is further blurred push from a small but highly active and influential segment as open-source supporting software and collaborative of digital users and communities to take control of their community structures become more sophisticated and digital experience. Consumers become dissatisfied with back-office support services increase efficiency and reduce traditional industry offerings. Grassroots communities grow costs. The internet becomes extremely decentralized. in power and pose fast-developing threats to businesses that Community connectedness creates focal points for common do not ride the wave of user and community participation. interests, and spurs distributed innovation across the world.

2009-2012: Established businesses face a stark choice: find ways to attract a community or face obsolescence. Novel organizational structures and price differentiation models emerge. Distributed innovation models, leveraging community strength, become mainstream in software, media and entertainment. Traditional aggregators are superseded by Personal Digital Agents that collate the opinions and experiences of friends and specialist communities.

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Middle Kingdoms Youniverse iia csse:Seaist 2015 to Scenarios Ecosystem: Digital

Safe Havens

Comparing the three scenarios This table compares some of the most import aspects of the scenarios. xctv Summary Executive

Safe Havens Middle Kingdoms Youniverse

Global environment • Unstable global geopolitical • Global geopolitical stability fosters • Global geopolitical stability fosters environment spurs protectionism. international cooperation, understanding international cooperation, understanding • Societies unite around their local and openness. and openness. distinctiveness. •A worldwide culture and sense of • There is global connectedness global community grows. and collaboration around common interests.

User empowerment • Industry accepts user and • Industry embraces user creation • Users take the driver’s seat: they community involvement as part of and competes for it, albeit under rules. determine the rules of their participation corporate strategy, but tightly controls it. • Community activities remain largely and collaboration, and personalize • Industry succeeds in capturing most of social. There are limited but growing their experience. its economic value. opportunities for economic value creation. • Organic communities are • Grassroots communities play a fringe – economically significant. but growing – role.

Market structure • Locally and regionally based large and • Value network is organized around • Value network is fragmented, vertically integrated consortiums a few large and powerful volatile, highly innovative, entrepreneurial dominate, offering end-to-end intermediaries and a huge variety and dynamic, harnessing the power customized bundles on proprietary, of specialized niche businesses. of communities. closed and incompatible platforms. • Low switching costs and low barriers • Specialized offerings targeting • New entrants face huge entry barriers. to entry. niche markets dominate. • Distinct Digital Ecosystems • Open standards and interoperable • The Digital Ecosystem is diverse emerge, both regionally and within and systems lead to a globally unified and bottom-up, based on open outside industry control. Digital Ecosystem. standards and modularity.

Market regulation • Anti-trust concerns and non-discrimination • Governments actively support open and • Responding to the lobbying by service and content providers are interoperable systems, and intervene power of users, governments de-emphasized. to guarantee market competition. foster the self-governance of digital • Networks and convergence services are communities, take a minimum subject to licensing. interventionist approach to licensing, and support incremental innovation.

Intellectual Property • Industry players implement corporate • Exercise of IPR is facilitated: • IPR are diversified. Open source Rights (IPR) proprietary IPR technologies. – interoperability of digital rights and “Creative Commons” licensing Infringement is energetically pursued management technologies become mainstream. through legal channels. – advances in identity and content • Businesses adopt interoperable digital management systems rights management technologies and refrain from heavy IPR enforcement. – global collective management organizations – effective international cooperation.

Security and privacy • Close cooperation between • Industry players self-regulate to maintain • Successful public-private initiatives governments and industry players brand equity. reduce fraud and increase digital security. leads to more control and security. • Government-industry co-regulation • Self-governing communities • Limited privacy as consortia track all improves cross-border enforcement. become commonly accepted. a user’s digital activities. • Third-party identity banks give users • Users own and manage their digital increased control of their digital identity. identity.

Innovation • Innovation takes place inside the • Innovation is industry-led and • Innovation is community-driven, consortia and focuses on distribution focuses on harnessing community distributed, and highly incremental. infrastructure and packaging services. power, personalization, and the • Businesses experiment with • Limited grassroots disruptive innovation. development of niche services. organizational structures to exploit user and grassroots innovation. 12 70121_DES_br:Mise en page 1 17.1.2007 18:34 Page 16 yg,, , g gy

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