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Gear Consumer Electronics Driving Media

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AOL for Windows launched - 1993. DVD launched - 1997. 6. Communications ... April 2001 -- AOL Time Warner, Bertelsmann AG, EMI Group PLC, and RealNetworks ... – PowerPoint PPT presentation

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Title: Gear Consumer Electronics Driving Media


1
Gear Consumer Electronics Driving Media
Communications Studies 197C Aug. 30, 2004
2
On Todays Episode
  • How is technology changing the entertainment
    industry?
  • From Inside or Out?
  • Convergence effects and direction

3
Basic Drivers Toward New Equilibrium
  • Technology
  • New and More Immediate Production and
    Distribution Channels
  • Drive Toward Unit Sales and New Technology
  • Deregulation
  • New Competitors Permitted in Markets
  • Global Reach and Expansion
  • Drive Toward Syndication of Content Concepts
  • Appetite of Capital Markets
  • Pushing Expansion Beyond Logicat times

4
Explosion of Consumer Options
  • Result?
  • Propagation of New Distribution Channels, but not
    more time nor advertiser pie increased
    fragmentation of viewing audience and advertising
    dollars
  • Consumer product dollars (esp. DVDs) pressuring
    competitive windows, increasing the cost and risk
    of products
  • Windows for low-end product to slide into
    diversified distribution channels
  • Threat to lock of traditional distribution
    companies/banks/portfolios

5
Consumer Good to Divisible, Editable Asset
Nintendo home video game - 1981
Blockbuster expansion starts - 1987
AOL for Windows launched - 1993
Blockbuster founded - 1985
Pay per view starts - 1985
??????
CD launched - 1983
DVD launched - 1997
Wireless media?
Napster - 1999
Broadband
PVRs
1980s
1990s
2000s
2010s
2020s
Digital
Mergers
Consumer Products
Channel Explosions
6
Lets Explore Changes
  • DVDs
  • Explosive growth, warping of movie and perhaps TV
    businesses
  • Music
  • Traditional business model to digital giveaway
  • PVRs
  • Tivo-ization of America?

7
DVD Speedy adoption vs other new media
technologies
The DVD is the fastest adopted consumer
technology in the history of mankind. Faster than
TVs, cell phones, VCRs, and even the internet!
Sources Rogers (1995), Steinberg (1980)
8
DVD Installed Base Expansion
2003 year-end U.S. installed base is projected to
be almost 54 million vs. 40 million at year end
2002, an increase of almost 15 million or about
35.
  • In 2002, approximately 7 million PS2 and Xbox
    game consoles are DVD enabled creating a total of
    over 17 million multiple player HHs.


Multiple Player HHs
U.S. DVD Player Installed Base (millions)
Single Player HHs
54
40
25
Inclusive of Home Theater in a Box systems,
Multi-Use systems and Portable DVD
players Excludes DVD-ROM and Game Consoles
Source Video Store Magazine 2003
9
DVD U.S. Distribution Oligopoly
U.S. Home Video is an oligopoly with Warner,
Buena Vista (Disney), and Fox accounting for over
50 of market share.
Source Video Store Magazine November 2003
10
Hasnt there always been music at home?
  • 1877 - Thomas Edison invented the phonograph
  • 1899 - Prototype magnetic sound recording
  • 1915 - First jukebox that played records (not
    cylinders)
  • 1920 - First broadcasting stations open (KDKA
    Pittsburgh)
  • 1922 - First portable radio in US
  • 1922 - First radio ad (100 for 10 minutes)
  • 1924 - First sponsored radio program (Everready
    Hour)
  • 1924 - 2.5MM radio sets in US
  • 1925 - KFWB-AM founded in LA by Warner Bros.
  • 1929 - Car radio invented, as was the 78 rpm
    record
  • 1931 - Electric guitar invented by Adolph
    Rickenbacker

11
Recorded Music Value Chain Present and Future
Hybrid music activities
New media distributor
Internet retailer
Traditional music activities
Management Company
Record Label
Manufacturing
Marketing
Distribution
Retailer
Consumer
  • Britney

Digital Delivery
Digital music activities
G. Geis
12
Music Entities Record Labels
  • Record Labels
  • Majors
  • Universal Music Group (UMG) Interscope, Geffen,
    Def Jam, Dreamworks
  • Warner Music Group (WMG) Warner Bros., Elektra,
    Atlantic
  • EMI Recorded Music Capitol, Virgin, Blue Note
  • Sony Music Columbia, Epic, Sony Discos
  • BMG Arista, RCA, J Records, Jive
  • Indies w/Major Distribution V2, Hollywood, Bad
    Boy
  • Indies TVT, Matador, Tommy Boy, Koch

13
Music Entities Distributors
  • Distributors
  • Majors UNI (Universal), Sony, BMG, WEA (Time
    Warner), EMD (EMI)
  • Indies Caroline, ADA, Koch Distribution, Ryko,
    TVT, Tommy Boy

14
Music Entities Retailers
  • Music Chains Tower Records, Virgin Megastore
  • Mass Merchant Wal-Mart, Target, K-Mart
  • Electronics Best Buy, Circuit City
  • Online Stores Amazon.com, cduniverse.com
  • CD Clubs Columbia House, BMG Music Club

15
Recorded music business
  • Worldwide sales of recorded music were 32
    billion in 2002
  • 39 of worldwide sales are from the US (12.6
    billion)

16
Big 5 account for over 80 of record company
market share in U.S.
Source Billboard, SoundScan
17
Big 5 dominate international markets as well
Source International Federation of the
Phonographic Industry
18
Change catalyst events
  • CD Format
  • Introduced in the U.S. in 1983
  • Catalog sales help fuel unprecedented growth
    throughout the 80s into the 90s
  • Soundscan
  • Billboard begins basing charts on Soundscan data
    in May 1991
  • Polygram-Universal Merger
  • Complete in 1998 to create worlds largest music
    company
  • Launch of Napster - June 1990

19
Digital Music Musical Chairs
Then April 2001 -- AOL Time Warner, Bertelsmann
AG, EMI Group PLC, and RealNetworks agree to
launch MusicNet, distributed by AOL and
RealNetworks. June 2001 -- Sony Music and
Universal Music announce Pressplay. Now April
2003 -- RealNetworks buys independent Listen.com
for 36MM. April 2003 Apple launches itunes on
Mac platform, with Oct. 2003 launch on PCs May
2003 Roxio buys Napster name (5.3MM) and then
pressplay for 40MM (12.5MM in cash) and
relaunches pressplay under Napster name.
20
Lessons from the music canary
  • Digital content impacts market from many
    perspectives
  • industry structure and power shifting (artists,
    new players, large incumbents, consumers)
  • technology standards battle
  • product form changing
  • business model morphing

21
Ringtones Shorter songs for more
  • Music at 99 cents ringtones at 1.99-2.50
  • Half goes to carrier
  • Est. 1 bn market in US by 2008 (Source Yankee
    Group)
  • Xingtone startup to let you create your own
    Siemens investment
  • Promotional partnership with Hollywood Records
  • Japan model imode on DoCoMo mobile phones
    micropayments for screenshots, ringtones, games

22
Tivo
23
Tivo Losing the Race?
Source The Carmel Group
24
DVRs Good or Evil?
  • C Cubed DVR users spent 21 more time with TV
    than the average viewer and more apt to sample
  • DVR owners skip about 70 of ads
  • InsightExpress and Media Post 96 of viewers
    using DVRs actually watch TV commercials
    (including fast forward) vs. 51 of regular
    viewers, who just ignore them
  • Product placementand Pepsi Smashand Mindshare
    North America launching The Days (ABC summer
    drama), while selling time to clients like
    Unilever
  • 3 minute ads (e.g. Ford on 24)

25
Next Steps in the Deconstruction Puzzle?
Blockbuster expansion starts 1987
Nintendo home video game -- 1981
Pay per view starts - 1985
Internet Bubble
AOL Founded - 1985
??????
Megaplexes - 1995
Wireless media?
Broadband
PVRs
1980s
1990s
2000s
2010s
2020s
Digital
Mergers
Consumer Products
Channel Explosions
26
Control vs Open Source
  • DVD industry standard
  • DVD HD challenges ( China)
  • Digital Cinema?
  • Sound?
  • Production gear open standard (largely)
  • Cable Boxes dont interconnect
  • iTunes/Rhapsody

27
Set Top Box Market
  • 10mm unit/year global digital box market
  • Cable Leader Scientific Atlanta 40 market
    share
  • high-definition and PVR-enabled digital cable set
    top boxes
  • Other players Cable Motorola, Sony, Phillips,
    Panasonic (Matsushita)
  • OCAP Cable Standards
  • Cable Labs

28
Satellite Other Set Top Boxes
  • Dish self-manufactured box
  • DirecTV TiVo, heading the NDS (News Corp sub)
  • Microsoft Media Center NO PIPE

29
800 Pound Gorilla -- Microsoft
  • 1975 to now 37 billion in revenue, 296 bn
    market capitalization (debt market equity)
  • Announced 32 bn special dividend where will
    growth come from?
  • MSN?
  • MSNBC? w/GE in 1996 now 3rd most watched news
    channel
  • Xbox? 11/01
  • eWallets?
  • Buying photo archives of the world

30
Microsofts Web
Microsoft Office Microsoft Project Microsoft
Visio SharePoint Portal Server Microsoft
LiveMeeting OneNote Professional Product Support
Windows XP Pro Home Windows 2000
Professional Other standard Windows O/S
Microsoft Great Plains Microsoft
Navision Microsoft Axapta Microsoft
Solomon Microsoft CRM bCentral
Windows Server SQL Server Exchange Server Other
Servers Developer Tools Training, Certification
MS Press Premier Product Support
Services Microsoft Consulting Services
MSN Network MSN Subscriptions
Xbox Consumer software hardware PC and Online
games TV Platform
Windows Mobile Software Windows Embedded Device
O/S MapPoint Windows Automotive
31
MSN Revenue
  • Q4 Summary
  • Growth in both display and search-based
    advertising drove advertising revenue up 35 Y/Y
  • Internet access revenue declined 84 million as
    narrowband subscribers continued to migrate to
    broadband
  • MSN total subscriptions approximately 8.8M
  • 4.3M internet access subscribers compared to 6.5M
    at the end of prior fiscal year

591M
588M
559M
546M
491M
5 Y/Y Growth
MSN Achieved Its First Profitable Year
32
Home Entertainment Revenue
  • Q4 Summary
  • Cumulative WW console shipments of 15.5M fastest
    growing console platform in CY2004
  • Live subscriber base exceeds 1 million
  • 50 Y/Y US software unit growth 6.9 attach rate
  • Signed agreement with Electronic Arts for Live
    enabled titles
  • Announced MSTV agreements with Comcast and SBC

1.27B
581M
530M
483M
499M
3 Y/Y Growth
Continued Xbox momentum
33
Mobile Embedded Devices Revenue
  • Q4 Summary
  • Increased share for Pocket PC products 64 Y/Y
    license growth
  • Announced release of new version of Windows CE
    software
  • 81 Y/Y growth in embedded operating system
    licenses

70M
63M
61M
53M
44M
59 Y/Y Growth
Strong sales across all product lines drove 59
growth for quarter
34
Sony Corporation Dependent on Gear 1Q04
35
Playstation Shipments Forecasts
36
Playstation Software
37
Cumulative Success 100MM PS Units since 12/94
7,300 titles 949 MM cume shipments
Playstation Portable (PSP) 4Q Japan, early 05 No
Am/Europe Playstation 3 05/06
38
Vs. the Rest of the Sony Empire
Source Investor Presentation
39
Relative Capital Expenditures to Succeed
40
The Battle of the Boxes
7.3MM(100) - 2001
23.2MM(150) - 2000
23.2MM
8.3MM (150) - 2001
Xbox Live 1MM homesPS2 3MM network adapters
1.3MM registered online
41
Piracy Impacts Large, Growing, Unknown
  • MPAA estimates analog and hard-goods piracy at
    3.5 billion, not counting illegal downloading
  • Outside research says 400,000-600,000 films being
    illegally downloaded each day

42
Piracy Haunting the Future
Source International Recording Media Association
43
Digital Piracy Hitting the Present
  • Worldwide recording industry dropped 10.9 in
    value and 10.7 in units for 1st half of 2003
    (International Federation of the Phonographic
    Industry figures)
  • Audio and music video formats dropped to 12.7
    billion from 14.3 billion
  • Sales had dropped 7.2 to 32.2 billion in 2002,
    down 8.4 to 3 billion units
  • Music DVDs up 46 in units and 55 in value in
    first half of 2003, now making up 5 of global
    music sales (63.5 million)

44
Illegal Business Models
  • Betamax time shifting for personal use -- ok
  • Distribution of personal copies
  • Online distribution networks
  • Physical distribution of downloaded music
  • ???
  • The Grey Album?
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