Analysis – Page 5 – Digital-Lifestyles

IDC: Mobile Applications for Consumers is Where the Money Is

IDC’s new study “Western European Consumer Mobile Data Applications” analyses opportunities for consumer mobile data applications in the market – and I can’t say that we were very surprised by any of the findings. IDC believe that the current state of the market is a good reflection of what to expect in the future: mobile operators will be making cash out of selling small applications, ringtones and other widgets to phone owners, in a market worth an estimated €6.67 billion (US$8 billion).

“This underlines that the wireless industry will not see the one killer application that many are still seeking and talking about,” said Paolo Pescatore, senior analyst for IDC’s European Wireless and Mobile Communications Service. “It is very much a cocktail and these applications will drive usage over GPRS, EDGE, UMTS, and HSDPA. All these applications – ring tones, gaming, video, and music – will eventually find their place on a mobile.”

IDC rightly report that demand for video is not very high, currently – and is certainly dwarfed by consumer interest in games, ringtones and SMS “texting”. As video is not very satisfying on phones at the moment, the industry must be careful not to over-hype the service or mislead consumers into thinking that they will be watching TV quality visuals on their mobile any time soon.

Operators will need to offer engaging content, the report says, and that means that they’re going to have to spend considerable amounts of money and resources securing the rights for that material, whilst partnering up with content houses.

IDC express surprise at the lack of music services for mobile users, and believe that people’s interest in music, coupled with mobility, presents a compelling reason to offer music services. IDC believe it will just take a bit longer, with operators rolling out services towards the end of the year.

The IDC study

Apple’s iPod dissenters continue. Are they right?

It is no surprise to see a rise of articles questioning whether Apple can hold onto their storming lead in selling MP3 player and the music that goes on them. They currently have, by most estimates, around 50% of the MP3 player market to themselves and 70% of song sales. Many companies, technology, consumer electronics and content owning, are now waking up to how far they have let Apple go.

Some people are starting to raise the possible ghosts of Macintosh – where Apple foretold the rise of windowed interfaces for computers, only to be overtaken by the growth of Microsoft. Apple’s response then was to pursue niche markets, originally DeskTop Publishing (as it was known then) and latterly Desktop Video. It is arguable that this is the approach they have taken again with music

Last time around they made mistakes. Steve Jobs bringing John Sculley onboard to run the company, and Sculley subsequently persuading Apple to remove Jobs, being the biggest. Sculley then went on to make many, many mistakes of his own. Who knows how different it might have been if Jobs had stayed in charge.

Many have drawn comparisons between the recent attempt to ‘open up’ iPod to other music services and Microsoft’s similar, and ultimately doomed attempt to open up Macintosh.

We feel it is important to not forget Apple had a 909 percent increase (not a misprint) in iPod sales in the first quarter of 2004 over the same period the year before. Equally let us also not forget that this is the start of media becoming digital and Jobs hasn’t even started on either music devices for home use or and type of video device.

Reuters – Apple’s iPod Lead Creates New Challenges, Analysts Say

NPD Group: Online Console Games Exceeded US$1 Billion Sales in 2003

2003 saw a 182% increase in the number of online-capable console titles sold in the US, and we think this demonstrates that the market is finally taking off.

Predictably, the majority of the sales have been first person shooters (FPS) and sports games. Sports games, such as EA’s Hockey and Football offerings are immensely popular in North America, much more so than in Europe and the rest of the world, and so they claim 69% of the market. FPS games, with 22% of the online console game market, have long been popular online (or at least on corporate LANs) ever since the early days. This is because they are easy to pick up and play and appeal to the demographic who are buying most of the games – there is an easy shift for those brought up playing multiplayer Marathon and Doom on PCs and Macintoshes to picking up a console FPS.

Role-playing games (RPGs) take up only 4% of the online console market as they are more traditionally in the realm of the PC: requiring a hard drive, a huge commitment to learn the rules and world involved, and, of course, absolutely all of your spare time. Not many publishers have taken the risk of investing in online RPGs – Final Fantasy XI and Everquest Online Adventures being notable and popular exceptions.

Racing games are currently worth 15% of the market – but watch this change dramatically when an online version of Gran Turismo finally hits the shops.

Almost all console games currently on sale with online components can be played offline – it’s a brave publisher who will make a console game that cannot be played off line, and the aforementioned Everquest Online Adventures is the only exception we can think of. This will change as consumers get more used to the idea.

However, not all games with online functions are bought because of that feature: Richard Ow, senior industry analyst, The NPD Group comments: “It’s important to note that the increase in sales for online-capable games does not mean that the masses are moving to online gameplay, in some cases, consumers aren’t necessarily aware they’re buying games with online capabilities, but whether they’re aware or they aren’t, the onus falls in the laps of the software developers to provide games with multiple playability features.”

Now, Nintendo – why is it just about impossible for us to get the broadband adapter for the GameCube in the UK? Think we’re going to play Phantasy Star Online on a dial-up?

Online games at X Box Live

Sony Central Station

Warp Pipe – getting your GameCube online

.mobile domain on the way?

There has not been a new Top Level Domains (TLD) since .name came out a couple of years ago. Even that ended up as a bit of a damp squib. But now a collection of nine corporations, have applied to ICANN (Internet Corp. for Assigned Names and Numbers) to form a new domain. Their proposal, .mobile is to be used for mobile applications/devices and will be filed by 15 March 2004.

Nokia is leading some pretty heavyweight companies from the worlds of computing, software, tech manufacturers, mobile phone makers and cellular service providers. The list; Microsoft Corp., Nokia, Vodafone, 3, GSM Association, HP, Orange, Samsung Electronics Co, Ltd. and Sun Microsystems is not only from a diverse range of areas, but are feature companies that normally do not really like each other, like, Nokia, Microsoft and Sun.

If the current application is successful, the current estimate is to have the first names available during the second half of 2005. An independent, separate organisation would run the registry.

This is not the first time Nokia has tried to get some new TLD’s introduced, back in October 2000 they requested, the following form ICANN:-

.mas
.max
.mid
.mis
.mobile
.mobi
.now
.own

At the time they came out with a press release, which sadly they have removed from their site, but thanks to archive.org (nee Way Back Machine), we can find the original release. (Interesting to see their projections for mobile handset, overtaking computers for IP access by 2003). The 2000 applications, clearly was not a success.

UMTS forum has been a big supporter for a Mobile TLD, or M-TLD, as they prefer to call it, and two years ago (March, 2002) they published the findings of ‘Benefits and Drawbacks of Introducing a Dedicated Top Level Domain Within the UMTS Environment’ prepared by Theron business consulting. The Executive Summary – is available to the public, the detail (TOC) is not without registration. The estimated cost of applying for and running the was estimated at less than 3m Euro.

The purpose of the .mobile domain, beyond opening up the domain market to another potential name grab, is not immediately clear. So after reading between various lines and carrying out further research we’ve concluded the following.

It appears that the idea is to limit the people who can get a .mobile name, and by doing this, they hope to ensure that, at the very least, the content is formatted for mobile devices and the service has a level of QoS (Quality of Service). If this will turn out to be a mobile walled garden, a mini-internet, only for mobile devices is not clear. Will .mobile domain only be available for use BY mobile devices, or are people to put their mobile-friendly content on .mobile domains?

Some quotes by the founding partner companies appear to support the walled garden theory.

“We expect that by leveraging the technologies of the Internet, appropriately scaled for mobile scenarios, this initiative will provide the ease of use and efficiency that will significantly fuel mobile Internet usage.”
Brian Arbogast, corporate vice president of the MSN Communications Platform at Microsoft

“Creating a unique, standard platform for a mobile Internet environment is a natural next step to enabling new and compelling services for businesses and consumers,”
Felice Swapp, director of strategic initiatives and business development, HP

Forcing publishers to create a whole separate sites to operate under a .mobile domain appears a very expensive route. We would imagine that it would be a much better to define a standard that can be used with any currently existing domain. ie just serve it from the same domain as before but define Digital-Lifestyles.info/mobile or mobile.Digital-Lifestyles.info as the convention.

If the mobile phone owners would get a choice between .mobile-internet or Internet is also not clear.

One things that the mobile industry understand is if each handsets has its own domain name, there are significant issues in maintaining DNS records and monitoring their connection to the Internet – as the phone connect and disconnect so regularly. This lead us to think that they are talking about maintaining a separate DNS system for mobile devices. If they do end up running a separate DNS, Nokia (or their JV company/partners) would become the gatekeeper to and from the mobile world – a very powerful position.

More details of this are bound to popup over the next few weeks, if anything relevant turns up, we will let you know.

The mobile Top Level Domain initiative

Nokia October 2000 application to ICANN

Theon business consulting

Nokia to Buy Psion Out of Symbian

Nokia has announced its intention to try and nearly double its shareholding in Symbian by buying Psion shares in the venture, taking them to a 63.3% holding. Symbian, created arguably the most successful rich media Operating System (OS) which is primarily used on mobile phones and portable devices. Almost 2.7m units were shipped with their OS in the first six months of 2003 and it is currently owned by seven partners; Ericsson, Panasonic, Nokia, Psion, Samsung, Siemens and Sony Ericsson.

Nokia propose to pay Psion in two ways; £93.5 million (~$173.8m, ~€137.1m) as a fixed payment, plus £0.84 (~$1.56, ~€1.23) for every Symbian OS equipped phone Nokia sells during 2004 and 2005. Psion are currently estimating the deal will be worth around £135.7m (~$252.1m, ~€198.4m).

This is not the first time there has been a significant shift in the Symbian ownership. Back in August 2003, co-incidentally Symbian’s fifth anniversary, Motorola announced it would exit Symbian, selling its 19% holding. The two partners picking it the holding were Psion who increased its holding from 25.3% to 31.1% and Nokia bought the rest of the Motorola shares, increasing its holding from 19% to 32.2%. Psion paid Motorola £17m (~$31.5m, ~€24.8m) cash, valuing Symbian at that time at £300m (~$557.4m, ~€438.4m). The current Nokia/Psion deal values Symbian at £430m (~$798.9m, ~€628.4m).

At that time David Potter, Chairman of Psion gave hints at their possible exit from Symbian, “Psion will continue to play its role in driving Symbian towards the successful exploitation of its market. At the same time, realising the value of out investment in Symbian for the optimal benefit of Psion shareholders is a key strategic goal”

This leaves two questions hanging in the air. What will happen to Symbian’s other minority shareholders now Nokia is far and away the largest shareholder? Where are Psion going now?

The other owners, lead by Ericsson, the next largest owner (17.5%), may feel shouldered out of Symbian or indeed be uneasy providing income to their largest competitor. Currently the only other option they would have is to go the Microsoft route with their less than perfect offering.

A few years ago Psion got out of the consumer hardware business and they also sold Psion Software to Visto in February for an undisclosed amount. They are now placing their bets on wireless applications in the enterprise. Initially growing Teklogix, which manufactures rugged, wireless devices to help companies streamline their logistics. They also plan to move into providing support to mobile workers in the field, such as medical staff who are visiting patients in their home.

Teklogix is an area they feel they have a strong footing in this business already, making it is a defendable area with potential for great expansion. The CEO, Alistair Crawford says they plan to focus on RFID and Voice. The benefits of RFID in the warehousing business are well known. Psion also feel there is benefits in using voice input there, as the operators quite often need to have both hands free, or their not able to use their hands, for example in a refrigerator unit.

Psion is a company that has changed considerably over its 25 years from its start writing software, in particular Chess for Sinclair computers, through single handedly pioneered the handheld computer market back in the 1980’s., to defending themselves against the onslaught from Microsoft. We’ll watch this space with interest.

Nokia to purchase Psion shareholding in Symbian – Press release

Interviews with Chair and CEO of Psion

Visto Corporation Purchases Psion Software – Press release

Midem Report: Focus on the Mobile Music Forum

By Paul Hosford, partner, New Media Law

In another crammed auditorium full of music industry and mobile phone industry delegates, keynote speaker, Takeshi Natsuno, MD of i-mode strategy at Japan’s NTT DoCoMo in revealed that its straightforward, entertainment-based service had attracted 40 million users to its subscription based model, because it is an utterly consumer focused offering. He urged his European and North American counterparts to leave behind current industry specific perspectives and to develop viable marketplaces for mobile content, where the key to overall success would be equal roles for all types of hardware manufacturers, content providers, and service providers.

His advice to the music content owners was to translate pricing models into the world of the packaged IT product – lower price higher volume, but to consider that the mobile operators need business models that address their industry’s concerns as well. Service providers should stay user-centric ensuring that even the most unsophisticated user is comfortable with, and enjoys using the product, for it to be properly commercially viable. DoCoMo’s model is to only take 9% commission on sales for themselves – preferring that “the revenue must go to the content providers”. In fact Natsuno said when other people within his organisation had suggested that they took a higher percentage, “I fired them”. This is a refreshingly different approach to current income sharing with many mobile service providers, particularly in the UK, where the operator takes as much as 40% of some services. His expectation is that their 40 million paying subscribers in Japan and 1.5 million active subscribers outside Japan will grow to a target of 100 million by 2010.

“Making Money from Mobile Music, Today” panel
In the panel session “Making Money from Mobile Music Today”, these different industry perspectives were apparent in the lively discussion of how ringtones and their increasingly musical offspring, “Hi-Fi tones”, had proved to be massive money spinners for the mobile operators. HiFi tones are near perfect reproductions of music. Representatives from T-Mobile International (Germany), Comverse (Israel), Musiwave (France), EMI Music Publishing (UK), Sony Music (UK), and Faith West (US) debated the future growth of “real” mobile music content with the development in mobile technology and the increase in personalisable ring-tones of various kinds beyond the mono and polyphonic tones that most of us are used to hearing. From the music industry’s side, as the quality of ringtones reproduction increases, record companies and publishers will overcome their initial reluctance to put their music on what they say has, up to now, been a platform with inadequate reproduction quality (they say they have been protecting their artists from low quality renditions of the music). The operators and service providers view is that it is clear that business models that take into account airtime and subscription considerations may or may not work for the rights owners. The record labels and publishers whilst obviously keen to collect revenues for themselves and artists from this potentially massive distribution opportunity will have to continue to develop open licensing policies across many territories. And if the operators follow Takeshi Natsuno’s advice, they will lower resale rates from the 10 to 40 % currently talked about.

Conclusion
As in the online environment, the on-demand mobile music world that will come to consumers in the near future will require the multiple rights relationships that exist within the music industry to be simplified and standardised – this in itself is a large task. As ever, what is all too apparent is that there are many expecting their slice of the pie – at an extreme the list could be as long as record company/label, music publisher, possibility the artist (depending on their contract), content aggregator, mobile service provider and payment system provider. One of the challenges facing the mobile music industry is whether the pie will be as big enough for everyone to get their slice.

MidemNet 2004 report

By Paul Hosford, partner, New Media Law

The fifth MidemNet 2004 opened the week long international music industry’s conference in Cannes. In heavily attended sessions this year, it appears, at least on the surface, that the industry is at last grasping on-demand digital distribution of music – the legal variety that is.

MidemNet is the music industry’s international forum that attracts players from every corner of the business to get together and discuss the issues confronting an industry severely impacted by the illegal distribution of millions of copies of its product.

Ted Cohen, EMI Music’ s senior VP of digital development and distribution, opened with the positive pro-industry message – commercial downloads represent the ultimate way forward for music consumers. He feels that it will come of age in 2004, and when legal battles are overcome and the consumer is empowered by commercialised P2P delivery, the industry’s bad reputation will begin to improve.

Keynote interviewee Eddy Cue of Apple’s Internet services announced what everyone suspected, the iTunes Music Store would launch in Europe at some point. iTunes throws into relief these challenges for the music business. Launched in April 2003 as a proprietary platform download service, the Music Store leverages Apple’s existing back-end infrastructure to offer a flat fee of 99 cents per track, and now offering 0.5 million tracks, made available by the Major record labels under recent licensing, but only available to US consumers. The delay in the European launch has been put down to resolving licensing across countries.

Setting out to develop “a better Kazaa” by 5 January 2004, iTunes has sold more than 30 million tracks in all kinds of genres, predominantly to an over-21 demographic. This has moved the Majors on from a proposition that only 2 and a half years ago was not on their list of potential licensing opportunities.

Whilst we all know and covet that beautifully packaged piece of must-have hardware that is the iPod, the reality is that Apples share of the 99 cents may not, in isolation, be sufficient to rev-up their share price. What is clear is that sales of iPod are going through the roof.

There has been a lot of discussion here about iTunes downloads not being platform-independent and that ultimately this may become a sticking point for the device-rich consumer who wants the flexibility to listen to their paid-for music on any device they own. In the meantime, iTunes sales still represent small numbers when compared to the world of illegal P2P sharing.

The European iTunes delay has highlighted a major problem. What will remain firmly as the principal challenge for any pan-European initiative is an industry with differing product release dates, differing licensing and rights collection mechanisms across the European territories – and differing price models. The message is clear – the industry must push through change in these licensing and publishing practices across the major markets.

In the panel sessions representatives of OD2, EMI Music, RealNetworks, French ISP Wanadoo and mmO2, debated the very real technical problems of delivering to consumers a single product where the industry’s marketplace and accounting mechanisms are territorially divergent and a very long way from uniformity. Whilst EMI’s goal is obviously, to sell more music by making it available in multiple formats on any platform, corralling all the various rights holders that share in recorded music remains the Major Labels most immediate challenge.

For the content aggregators, the ISP’s mobile networks and digital music intermediaries, the problems are different, but equally complex. They must deal with multiple payment mechanisms, differing pricing regimes and a complex value chain that makes it very challenging to deliver cost effective alternatives to paying consumers demanding of quality content. What will be critical to delivering a successful consumer experience is cross-platform transferability of the downloaded track that is paid for once.

In the meantime, the disc media formats are very much alive and kicking representing over 90 percent of music bought today. Your correspondent for one is looking forward to experiencing SACD recordings – real surround sound.

Analysis: The FCC Rules to Adopt the Broadcast Flag

The US Federal Communications Commission (FCC) has elected to adopt the ATSC flag, otherwise known as the Broadcast flag – a digital code that can be embedded into a digital broadcasting stream to mark content as protected. All equipment capable of receiving a Digital TV (DTV) signal, be that TV or computer, sold after 1 July, 2005 in the US must comply with the ruling.

Content owners have been lobbying hard to try and get it brought into law, as they felt the broadcasting of their content in a digital format without the flag would lead to widespread piracy. Others, including the Electronic Frontier Foundation (EFF), raised a number of objections to the most stringent of restrictions and were particularly concerned with the protection of consumers current “fair use” rights. It appears that the FCC has listened to all sides of the debate and have accounted for their views.

The FCC announced ruling is that only equipment that is capable of receiving Digital TV (DTV) signals over the air will be affected and must “recognize and give effect to the broadcast flag”. The recording equipment and possible content protections schemes they employ will be addressed at a later date and are described below.

Alternative protection schemes had been proposed to the FCC. The considered the encryption of content at the broadcaster and the use of watermarking or fingerprinting technologies. Both of these were rejected at this stage as it was felt that the technologies were currently not mature enough and, in the case of encryption the burden on the broadcaster would be too great.

The FCC state the main aim of the ruling is to stop the wide distribution of the recorded content over the Internet. Many parties will be pleased that consumers will still be able to make personal digital copies. In the FCC words “redistribution control is a more appropriate form of content protection for digital broadcast television than copy restrictions”.

While the FCC is at pains to point out that that they feel it is important that consumers are able to move recorded content around, what they call, the Personal Digital Network Environment (PDNE), they have declined to define where the edges of this lay.

Although currently there are no detail given about the mechanism to stop personal copies be distributed wider a field, more detail on this are expected later.

One fear of consumers, who have already spent large amounts of money on DTV capable equipment, was that they would be forced to discard their current euipment and buy new, compliant equipment. They will be pleased to discover that this will not be the case; “All existing equipment in use by consumers today will remain fully functional”.

New DTV equipment, “Demodulator Products” sold after 1 July, 2005 in the US must comply with the ruling;

“If the flag is present, the content can be sent in one of several permissible ways, including (1) over an analog output, e.g. to existing analog equipment; or (2) over a digital output associated with an approved content protection or recording technology”

It is not clear if the quality that the digital broadcast brings will remain in the analogue output, or if it will be forcefully degraded to discourage the digital distribution of possible analogue recordings.

Changes to DVD
While it has been stated that current TV equipment will remain useable, the future for current DVD players is far less secure. Hidden in footnote 47 the FCC states:

“We recognize that currently, content recorded onto a DVD with a flag-compliant device will only be able to be viewed on other flag compliant devices and not on legacy DVD players. While we are sensitive to any potential incompatibilities between new and legacy devices, we believe that this single, narrow example presented to us is not unique to a flag system and is outweighed by the overall benefits gained in terms of consumer access to high value content. Changes in DVD technology, such as the transition to high definition DVD devices, will present other unrelated format incompatibilities.”

The briefly translates to DVD players currently on the market will not be able to play DVDs which have been marked with a Broadcast Flag.

Given that DVD is famously the fastest ever growing consumer technology, it is not clear what the public views will be on the fact they will need to replace them.

Affect on the broadcaster
As covered above, the broadcaster will avoid the burden of having to encrypt content prior to broadcast.

The FCC has given individual broadcasters the freedom to make their own decisions as to whether they attach the Flag to their broadcast stream, but points out that they may not have content licensed to them, if they do not implement it.

Some groups urged that the broadcast of certain types of programming, such as news and current affairs, would be prohibited from use of the Flag – in effect during their transmission, they would be forced to turn the Flag off. The FCC has ruled to decline this.

Further discussion on recordings
As we have touched on, while the current ruling only covers the receiving equipment, the FCC is now seeking guidance on creating policy for recording equipment and content protection schemes.

This is the area that will prove most controversial, as it will effectively lock the content. Consumer groups fear that it will also lock the content to a particular company, leading to competing systems not allowing the playing of one companies protected content on another’s platform – the inability to exchange material between formats. This has been labelled the “interoperability” issue.

To address this whole subject, there will be an interim policy for approving digital content protection and recording technologies to enable the FCC to certify multiple compliant technologies in time for manufacturers to include flag technology in television receivers by 2005.

The policy details have been laid out and include the public publishing of proposals, followed by a twenty day period where any objection can be raised. The proposer is then given ten days to provide their response.

The FCC will take all input and make their judgement, which they hope to deliver within ninety days of filing.

The interim policy will in turn be replaced by a permanent policy and the FCC initiated a “Further Notice of Proposed Rulemaking” to examine this issue in greater detail.

FCC Order and Report (Word doc)