Convergence
Crossroads
Well
over a year after the "new media" shakeout, communication
convergence (from delivery to devices) continues to proceed.
Media corporations have been forced to rethink their business
plans in an increasingly fractionalized landscape, while
consumers are drawn towards delivery devices that offer
simple, all-in-one convenience, even as information and
content offerings become more dispersed. We are now witness
to one of the most unsettled periods in our history, as
inventors, business people, artists and developers attempt
to align innovative new products and services with consumer
demand.
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It
is no secret that the music industry has probably endured
the most upheaval, chaos, confusion, and strife with digital
distribution technology. So much has taken place since the
RIAA's legal battles began with the 1999 lawsuit against
Diamond Rio, the manufacturer of the first MP3 player. Even
though online subscription services from the major labels
began launching at the end of last year, their long-term
success rate will not be foreseeable for many months. Many
of the recent headlines about subscription service launches,
from Wired to Rolling Stone, to Wall Street
Journal, echoed the lingering question-- 'will they
actually work?' Although this new Internet extension of
the brick and mortar recording industry was inevitable,
that question is impossible to ignore, especially after
millions of people have become accustomed to acquiring a
much larger selection of music for free.
Despite
the daunting crossroads it now stands at, the recording
industry could have possibly been handed a blessing in disguise
with the advent of digital music distribution, which it
has fought so ardently to first prevent, and later control.
If MP3, Napster, or the other digital adversaries of the
labels had never existed, and the industry was still distributing
content in the traditional format of a packaged CD, this
new way of delivering any kind of music to consumers everywhere,
instantly, may have also never existed, at least at the
level it has reached via its "underground" epidemic.
The technology didn't just blow control out of the water,
it blew the decades-old, limited concept of how to dispense
music. Although it has endured the most turmoil as a business
in light of rapid digitization, music is ironically more
suited to Internet distribution than any other form of content
or information. Now labels have the potential to reach listeners
in a way that wouldn't have been possible in 1999, and a
market of customers who have become quickly accustomed to
a new technology.
"Labels
are now looking at how people want music, any way they can
get it, because people are so used to downloading,"
says Chaz
Austin, new media consultant and panelist at the ctexpo
luncheon session, Convergence
Meets Consumers: New Applications, New Challenges
(moderated by Larta CEO Rohit
Shukla). "People are now used to downloading, and
the next step is downloading to a wireless device. If they're
smart, they're finding ways to adapt so that whatever new
technology comes out, they can continue to find a way to
get content to the consumer, so now the distribution will
be where its effective." Austin refers to the old 'within
arms reach' mantra of Coca Cola, and how the labels are
starting to see that, "it applies to music now, in
a new way because of this technology. The smart companies
will see that."
The
power structure is obviously poised for serious change,
as has been speculated by media, analysts and industry players
repeatedly. Music publishers and artists obviously have
a new leg up, while record companies have the most to lose.
As music companies go through this daunting and uncertain
transition, the value of the former product (the compact
disc) and distribution method (the store), has decreased
with the widespread availability of free audio downloading.
"The consumer does not see the value of the CD today
(because of digital music), which is the main problem for
the recording industry," says Kevin Wall, the Chairman
of the
Digital Coast Roundtable, who is also speaking at the
ctexpo panel.
"And then there's a massive amount of battling that
goes on behind the scenes, and without a united front, they
will not solve their problem. You now have music publishers
arguing with record companies, record companies arguing
with managers, and no one agrees on anything. And then with
the Internet, music is thriving under tremendous change
because you can go on and get anything they want and it's
not that they are even they paying for it. When the record
companies come up with a way to sell their content online,
its complicated, it doesn't work."
Another
industry that Wall perceives as being embattled with the
advent of digital technologies is network television. Wall
characterizes the industry, as going through a "fractionalization"
crisis, citing the rise in the amount of cable channels
in the past decade (from approximately 30 in the average
cable box in the early 90s to around 300, which has been
largely possible with the digital cable box in many homes
today). This, along with digital television recorders which
give consumers the option of circumventing commercials from
their programming time, and audience shrinkage that has
been directly attributed to a rise in Internet use in homes
during what would normally be TV time, has thrust the network
television industry's business model into attack. In order
to profit on advertising, networks will have to restructure
advertising revenue streams through what he refers to as
client furnishing. This is where an advertiser will pay
for a program, such as a Garth Brooks special, or on a larger
scale, selling off substantial time slots such as entire
days or evenings, to an outside company.
"You're
going to start to see financial 're-engineering' of outside
companies creating networks within networks," says
Wall. "Networks will program the hours instead of trying
to program on a 24-7 basis competitively against all these
other offerings. So they take the time and the networks
they put together and sell those off for a higher value
for a program that they can do themselves. So for me these
are the early things that are starting to happen."
As
big labels, studios, networks and distribution corporations
try to adapt to this rapid digitization, and encounter disappointment
at trying to rein everything in under one umbrella, technologists
also struggle to understand a shifting marketplace. Wall,
who is also a VC with Shelter
Ventures, sees many business plans based around communications
technologies that, although may be innovative, have no real
market.
"I
see a huge amount of technology plans that come to us that
are based on winning the entertainment media business, and
unfortunately if that's the business you're trying to win,
that's not a company that's too fundable," says Wall.
"Tech companies, on paper say, 'here's the solutions
to the problem.' Except then you start to peel back layers
and realize it's a very complicated, relationship-driven
business. Peer to peer architectures, that sort of thing,
is just not going to work here. And when I say that, I'm
saying it from tremendous knowledge, from somebody that
wants that to happen, but knows it's just not going
to happen."
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As
the entire media and entertainment landscape becomes fractionalized
via digitization, from corporate structures to the increasing
multitude of offerings, the consumer device market is ironically
gravitating towards an all-in-one trend. At January's Consumer
Electronics Show in Las Vegas, many of the device manufacturers
premiered or showed off already-existing gadgets that had
combo characteristics, such as the Sony CLIE, the first
Palm OS-based handheld with an integrated digital audio
player, and mobile phones that had multiple capabilities
(i.e. fax, web access, digital camera, etc.). The show also
had products that demonstrated what both Wall and Austin
feel will be the next wave, home networking control units
that have the ability to operate and manage anything from
sprinklers to PCs.
"You
can have this combo mobile unit, that is like a PDA, that
will open the garage door, or check on an empty refrigerator
and have those things ordered," Austin says. "It
can set the room temperature, record your Tivo. A central
device that can be used remotely to run everything that's
electronic, I think we'll be seeing a lot more of that."
The all-in-one home concept was also present in the gaming
front this past year with the release of the Sony Playstation
and Microsoft XBox, which incorporate DVD and Internet capabilities
for the first time with a gaming console. During his CES
keynote, Bill Gates referred to this "integrated experience"
as being an essential piece of what he phrased as the upcoming
"digital decade."
"When
we talk about integrated experiences we mean that if you
move from device to device, your information is there for
you," said Gates. "If you customize the news page
that you care about, when you pick up the screen phone,
it comes on to it. If you care about certain traffic or
stocks, that is always there. If you are using one device
when the system wants to notify you that someone wants to
connect up to you for instant messaging, they know where
you are. You can decide based on your priorities, who it
is and exactly what sort of interaction you want to have."
How
fast consumers will take an interest in increased high tech
sophistication and convenience is still a risky guessing
game. Technologists, and companies/investors funding them,
can be both innovative and insular at the same time. The
bruises of the wireless world alone can attest to the need
for apprehension against hype of what consumers will latch
on to. However, the long-lasting communications trends of
the past decade--email, mobile devices, Internet--did not
come into existence because there was a need that was tapped
and simply filled. The need was created after the innovation
was unleashed.
"You
have cell phones for people who, even two years ago, never
had one in their life and now who can't live without it,
and you didn't have email a few years ago, now you wouldn't
think to not check your email," says Austin. "What
we now know, and what will still be a theme, is that people
are used to mobility and instant gratification. Whatever
comes out of that in the future is a completely natural
evolution for them."
by
Wendy Hall
Larta Staff Writer
March
5: ctexpo
As it moves into its second decade, ctexpo continues to
deliver comprehensive educational content on the industry's
most innovative technologies. From beginners to the most
advanced developers, the program will feature content designed
to fill in the gaps. Delegates will learn how to harness
convergent technologies. How to bring together the hardware,
applications, products, services, builders and channel players.
How convergence connects diverse technologies with different
protocols, business models & strategies… how to
make them work.
more
information
Luncheon Session moderated by Rohit Shukla, Larta CEO:
Convergence Meets Consumers: New Applications, New Challenges
The
growth of Internet usage, broadband connectivity, and collaborative
software has given way to a new, compelling and immersive
multimedia experience for IT users, consumers and businesses
alike. Internet telephony has led to increased sophistication
in communications ("net meetings" for example),
while the rapid spread of peer-to-peer networks has implications
for collaboration on the Internet. The growing applicability
of convergence technologies has opened up opportunities
and created challenges for a range of players, from vendors
to service providers and end users. This special luncheon
session will feature a conversation between platform creators,
web services providers and digital media experts, and an
interactive session with the audience will follow.
more information
Now
available from Larta: Hollywood Unstrung 2, The Emerging
Digital Challenge: D-Cinema and Beyond
Larta's
latest research report on digital technologies examines
the future direction of digital cinema as well as other
technologies influencing the entertainment industry including
interactive entertainment, digital audio, and digital production.
more
information
