Ever since I opined on the miraculous growth of apps last October, I continue to be amazed with Apple’s staggering 10 billion (and growing) app downloads.  I stumbled across this incredibly interesting and nerdy infographic that shows that only 500,000 apps have generated these impressive download numbers.

Below is only the beginning of a very long infographic that illustrates a timeline and history of Apps.  In the complete version, you’ll learn that:

  • An estimated 4.5 billion apps sold in 2010, generating $6.8 billion in revenue
  • An estimated 15 billion apps sold in 2011, generating $19.7 billion in revenue
  • An estimated 21.6 billion apps sold in 2013, generating $29.5 billion in revenue
  • Of the nearly 400,000 apps live in May 2011, 62% are paid

While Android apps continue to grow, I fear that they will be catching up for a long time to come.


UltraViolet: Who's Really Getting Burned?

As entertainment continues to gasp for air and content owners watch their revenues plummet, the industry continues to achieve nothing. Think of the Coppertone Girl if she didn’t do anything about the sun’s harmful ultraviolet rays. She’d end up burnt.

Call me a Fool, but I’d like to expose why UltraViolet is hazardous to the health of both the entertainment industry and the consumer. If it continues on its current course then, in the future, I won’t get to watch my movies the way I want to.

The industry appears to be trying to move to a “watch wherever” model. That’s a good thing because that would allow me to get my content on any of my devices like my TV, PS3, i-Pad, mobile phone, etc.

It’s a great theory, but the way things are going this initiative seems destined to fail.

Are the studios waffling?

The studio-centric UltraViolet was started three years ago when the market was different and they felt that a digital standard was required to continue selling content in a world where disc sales were crumbling.

Time has marched on and I now understand the studios are waffling, beginning to disown the very usage model that allows you to “include up to six people you define as your household” and “access all of your shows and movies from any of up to 12 registered UltraViolet devices.”  (Don’t shoot the messenger.  This is straight from uvvu.com).  They are getting cold feet with this fundamental premise because they feel the model is overly generous and too big of a departure from the current model.  They also are concerned that the members of an account would misuse their rights by sharing content too liberally among members and devices in their account.  You tell me what that really means…

To this day, the business costs of how UltraViolet works is ambiguous.  Commitment to the business model is a long way off.  Who pays for marketing? The studios spent millions promoting Blu-ray; why aren’t they ponying up to market UltraViolet?

Warner Brother’s seems to be confirming this waffling.  Its President announced a “Digital Everywhere App” that allows consumers to manage their video content the way they can with music and photos.  Warner expects the App to connect consumers with and enable other retailers like Amazon, Netflix and Apple.

Wait a minute: we know for a fact that Apple will continue on its own course and never join UltraViolet, and Amazon will refuse to sign up because it is busy with its own cloud services plan. Netflix doesn’t even sell or rent movies so to them a digital locker is irrelevant.  Warner’s ruse of playing nice with retailers that will never launch UltraViolet services is just more waffle.

Could I please have some extra syrup, as this is all a little hard to swallow?

The Sun rises in the West?

Device makers will have to create new devices in order to support UltraViolet.  Since this engineering takes people, time and money, they only add functionality if they think it will help to sell more devices.    It’s too risky to start production with changing and ill-defined specifications. It’s not surprising they are standing on the sidelines and waiting before they invest R&D resources until it is a safe bet.

They are tiring of studio waffling.  With each waffle, device makers push back their ability to deliver UltraViolet-ready devices by a minimum of nine months due to production lead times. For devices to hit stores for the 2011 holiday season, they would have needed to start production in February.  That didn’t happen.

Device makers are unclear on the benefits.  They know it will cost more to build the devices, and they know that no one appears to be stepping up to pay for marketing. The upside was selling more devices supporting an open standard, but now they are not so sure.

They were excited at the prospect of a beautiful sunrise with UltraViolet, but it turns out that they are tired of waiting in the dark only to find the forecast is mostly cloudy (with a chance of meatballs).

Are retailers’ heads in the cloud?

Contrary to what others think, I believe that people learn about new stuff by going to stores.  At the moment, these retailers SELL the vast majority of disc-based content.  As I look at UltraViolet, there doesn’t seem to be many disc retailers involved.  Think of the number of visits that Amazon, Wal-Mart and Target have coming through to learn about and buy products.  Where are the other retailers?  Where will consumers go to learn about UltraViolet without retailers?

The concept of interoperability requires multiple retailers in each territory to launch simultaneously.  Recent estimates would see a top DVD retailer paying $10M in fees alone in the first year to operate an UltraViolet service.  The costs seem high, but retailers will get involved if they understand the benefits.  So far, these benefits are obscured and preventing retailers from committing.

I might be wrong, but maybe consumers don’t need stores or online sites to learn about new products.  Some device makers like Samsung with their TV apps, Microsoft with Xbox and Nokia with their handsets, are positioning to go direct to consumers.  Even Warner Brothers is demonstrating that maybe selling their wares directly to consumers is the future.  I have a foolish idea: maybe they can pick up the nearly 1,000 Blockbuster stores that Dish is dumping in order to reach consumers…

The disincentives are clear.  UltraViolet is expecting retailers to expose themselves and use their resources for the marketing and promotion of the UltraViolet brand.  UltraViolet will provide marketing materials (they will throw some bones like messaging and logos) that retailers will have to license. Other than that, they are on their own to market and promote the UltraViolet experience.  Retailers should not, will not, and do not reach into their own pockets to market other company’s brands.

So who’s getting burned?

UltraViolet burns the consumer.

With studios, device makers and retailers in a game of chicken, UltraViolet will rush to get something to market and water down any meaningful consumer offering to the point of being insignificant.

Think about it – should Sony be the last studio standing in UltraViolet, what good does a service do for a consumer that only has their content? It’s likely that, due to the number of companies involved, the offer will end up costing more than stuff that’s available today.  Would you pay more?  With manufacturer lead times, what if there are no devices that support UltraViolet services? If you can’t buy from retailers that you are used to, then what did 70+ companies over the past three years achieve?

My dream of watching content on all my devices seems further off than ever. With UltraViolet burning consumers, entertainment junkies like me will stop buying and keep in the shade.  I’m afraid that the sunset for entertainment is coming all too soon.

Friday’s post laid out some grim evidence about the state of entertainment retail.  It seems that Nipper, the loyal old dog that got so famous for listening to His Late Master’s Voice through the gramophone, has gotten fat.  If it’s not the economy or other lame excuses, then what’s going on?

Sales of discs are NOT being replaced by digital

As physical sales began declining, many in the business began to assume (and hope) that the declines would be offset by digital sales.  However, the transition to digital from physical is nothing short of a catastrophe.  Total revenue from the sales and rental of content (physical and digital) has been declining over the last several years, and nothing seems to be working to reverse this trend.   The industry is in free fall.

We got here because content owners chose to hang on to the old model and get fat and lazy rather than nurture the development of an inevitable new digital model.  That attentive and amazed terrier somehow turned into a territorial pit bull that didn’t want to switch to a more lean and nutritious bowl of food in the name of health.   Here’s what happened.

Content protection

Content owners began emphasizing how to protect their content as it changed from digital on a disc to digital in the computer.  The music business stood by in paralyzed disbelief as fans turned to crime and stole entire music collections.  In the movie world, studio execs focused on preventing illegal file sharing and created complicated content protection that had the unintended consequence of making it nearly impossible for customers to enjoy content across a variety of devices.

What was great about the DVD – the convenience of using it in any DVD player – was completely undone in the digital world.  What a pain it would be if you had to buy three different DVDs to play in your computer, on your phone, or on your TV!  With the difficulty of watching movies across devices, consumers have checked out and don’t really care about digital.  The irony of all this content protection is that it hasn’t done a thing to stop illegal file share.   Not to mention the content owners have allowed a near Apple-monopoly.

Backwards economics

The next big issue concerns the economics that motivate retailers to sell products to its consumers.   In the DVD world, studios pay to manufacture a DVD – the plastic disc, the case, the paper on which the artwork is printed – and then ship off the package to the retailer.  The retailer pays a wholesale price to the studio and then in turn sells the DVD to its customer with hopefully a bit of extra margin to make some money.  Easy, right?  In the digital world, something happened that I really don’t understand.

Digital files have manufacturing and distribution costs associated with them.  But for some reason, content owners began pushing these costs onto retailers.  As a result, retail margins to sell digital goods took a hit.  When retailer margins take a hit for no good reason, retailers lose interest in selling a product.  Consequently, retailers haven’t readily adopted digital.  There is simply no motivation to help a customer transition to digital.

So, here we are.  The industry suffers as DVDs and Blu-rays sales continue to decline and customers opt for a cheap and easy subscription or rental offer (think Netflix, Amazon, Vudu).  The last standing retailers don’t know what to do with the dying entertainment category.  As smaller retailers go out of business, the big ones are looking at other more profitable things to sell their customers and fill the space in their stores.

The prognosis for the now fat and lazy Nipper is not looking good.  He needs to get up, move around, and start thinking of doing something different.  Otherwise, he’ll become another obesity statistic.

Things seem to just be getting worse for retailers as difficulties mount.  In turn after unfortunate turn, the stories seem to end up with retailers shutting down.  And this is especially true with retailers that sell DVDs, Blu-ray discs or CDs.  Unfortunately, the broader entertainment industry is not doing much to help out.  In fact, the finger of blame for much of the closing of these very important channels for entertainment companies can be pointed directly at…the content owners themselves.

Entertainment Retail is nearly dead and is gasping for air

In today’s news, Nipper, the loyal old dog that used to listen to His Late Master’s Voice, seems to have turned on all of his owners and has lived up to his name by biting one of the last surviving entertainment retailers in the UK.  You see, HMV – the retailer with the logo of the cute little terrier listening to the gramophone, is pretty much a goner.  The share price hit its lowest level ever during trading today and closed at 10.25 penceRecently, in a not-so-amusing gaff, an important Englishman named George Osborne (he’s the Chancellor of the Exchequer) basically stated that HMV is just about dead.

After three profits warnings in the past four months and continually trying to sell different chunks of the business, the future does not look so good.   They continue to fight for their life, but let’s just say that HMV is not a particularly appealing stock.

On our side of the pond, Best Buy in a recent press release talked about some not-so-good Q4 results. No, Best Buy is not going out of business, but their entertainment category might.  In Q4, entertainment declined by low double digits.  And their recent erratic behavior (buying the CinemaNow name to try to win its own Best Buy digital customers while recently doing a deal with Roku that hands customers directly to Roku and its content partners), indicates that they have no idea what to do.

Now try this:  Think back to ten years ago.  What retail stores did you go to in oder to buy your music?  Name three stores.  OK now think of today.  What retail stores do you go to in order to buy music from your heyday?   Not so easy to think of, right?

You get the evidence

So what is going on here?  Sure, there’s the lame excuse about the economy, the proliferation of entertainment options, the shift to other ways of consuming.  But, there is something else going on.  I believe the content owners have been playing games that have led to the destruction of entertainment retail.  As if on cue, Kevin Tsujihara of Warner Brothers Home Entertainment today announced a “Mega-App” that basically cuts retailers right out of the picture so Warner can go direct to customers.

How’s that for kicking a dog while it’s down!

Amazon’s Cloud

Cloud computing, cloud syncing, cloud services, cloud storage.  It seems like anything these days with that ambiguous (and overused) word is sexy.  And the Cloud got a huge jolt of tangibility from Amazon’s launch of Cloud Drive and Cloud Player this past week.  But, the content industry is not too thrilled; more on implications in a bit.

Suffice it to say that the Amazon Cloud Drive and Player are consumer-oriented services that allow users to back up their local music libraries and play them remotely from anywhere via the Web or an Android device.   For you and me, that means if our tablet, laptop or smart phone crashes, our music would be left untouched and ready to be accessed on another device.  We can expect that Apple and Google will follow shortly with their own cloud offerings, but Amazon wins the First to Market Contest. For a decent read, check out the New York Times for an overview.

In terms of the experience, user reviews are also beginning to land (here’s a good one, there’s a decent one).  The most consistent positive callout is about the interface and ease of use.  On the negative side is the fact that uploading your entire music collection takes a ton of time and is generally a pain in the derriere.  Costs seem reasonable enough (free 5GB and $1 per GB thereafter).

OK enough facts.  Let’s now riff on the impacts of Amazon Cloud services on the music and movies businesses.

The labels are annoyed

Record labels are pretty well pissed off at Amazon for going to market without really consulting them and seeking out the appropriate licenses to stream music from the cloud to your devices.  Labels are concerned because they feel that some music in your collection isn’t “legit:” some music is either stolen from file sharing sites or ripped from friends’ CDs.  Besides offering a service that cuts revenue from labels on inappropriately obtained music, labels are worried that Amazon Cloud services will encourage friends to rip – and share – their music collections.

As Copyright and Technology points out, Amazon’s likely attitude toward the labels is “So sue me.” Simultaneously Amazon will argue that the labels owe them a favor for offering a competitive service to iTunes.  All I can say is that lawyers are licking their chops on the ensuing litigation that will undoubtedly occur.

And how about the studios?

While Amazon Cloud services are limited to our music collections for use across our non-Apple devices, Amazon will likely allow you to put your movie and television shows in the Cloud in the not so distant future.  Studios will undoubtedly resist Amazon Cloud services without the appropriate protections in place to make sure we nasty customers don’t steal and share with our friends.  I think we should expect some interesting (and litigious) discussions to come.

What about current industry efforts with the Cloud?

In an interesting twist, Ultraviolet, which has studio backing from all but Disney, is now faced with a few interesting scenarios to consider as the Cloud space materializes.  On the positive side, with Amazon’s launch into the Cloud, Amazon is educating consumers to what life looks like with “up there.”  So an optimist could argue that Ultraviolet will benefit from drafting Amazon’s efforts.  Another outcome for Ultraviolet is if Amazon joins the consortium and then potentially leverages Amazon’s considerable Cloud infrastructure. Good for Ultraviolet, but bad for the only member company that has skin in the game.  Neustar will need to figure out how to avoid being squeezed out by Amazon.

Another scenario includes Ultraviolet being a potential competitor to Amazon’s Cloud.  If the studios get a sudden change of heart to license content to Amazon, Ultraviolet may just evaporate.

Wrap up

The Cloud is heating up, for sure.  Google and Apple will launch something, and soon the Cloud will become a must have feature in any content service.  But the content industry will not go quietly into this Cloud-based world.  And like the legions of lawyers out there, I’m grateful for the job security and the articles to come.

What do you think?  What are scenarios with labels, studios, industry consortia?

In an interesting strategic stretch (and I mean hamstring-popping-type stretch), Dish Networks acquired the defunct Blockbuster for (ouch) $228 million.  That’s a staggeringly low price for a company that once cornered the video rental market and had one of the most recognized brands on the planet.

While Dish said that it would enter the video business and re-establish Blockbuster as a leader in the video space, I hope that they are talking about something different behind closed doors that hopefully makes more sense.  I fear that the physical rental model with 1,700 stores is doomed to fail under the pressure of Netflix and the myriad direct to home video services that are cropping up.  And, it seems that Redbox (despite Hollywood’s utter disdain for them), has won a place in the heart of McDonalds-scarfring public that will ensure Redbox some place in this space.  So if Dish follows its awkward strategy of restoring Blockbuster to former glory, then Dishbuster they become.

So the question is, what will Dish do with Blockbuster?  Well, I feel that real estate is the only thing that makes a difference to Dish.  So what then, Dish stores in every neighborhood?  I’m very skeptical.  Blockbuster has a video service that Dish could use, but I can tell you that there are MANY struggling movie services for way cheaper.  And brand equity?  That’s a tough strategy to swallow.  Seems to me Blockbuster is synonymous with an old brand who saw its day in the 90s.

What am I missing with this acquisition? Why does it make sense?  It sure seems like tomfoolery to me.

Here’s a quick blurb from Barrons:

Satellite television provider Dish Network (DISHthis morning said it will spend $228 million to acquire the assets of BlockBuster (BLOAQ) after winning a bankruptcy court auction for the defunct video rental chain yesterday. The deal is expected to close this quarter.

Tom Cullen, head of sales, marketing and programming for Dish, said BlockBuster’sstores, of which there are over 1,700, will complement Dish’s video offerings and provide for cross-marketing opportunities.

It sounds as if Dish expects to actually make a go of this video rental thing:

“While Blockbuster’s business faces significant challenges, we look forward to working with its employees to re-establish Blockbuster’s brand as a leader in video entertainment,” said Cullen.

Now here’s a counterpoint to my recent optimism on the music business.  After reading this piece from Digital Music News, I have somewhat returned to my darker opinion that the music industry is going to get worse before it gets better.  I still believe there are innovative models, but the old guard must step down.  Those glory days are done.  Technology now rules.

The content industry has lost its cool, and this is now a major concern for Hollywood as well.  Over the past ten years, technology has become the new rock star, and that’s affecting everything from consumer behavior to Capitol Hill legislation.

Don’t believe me?  Go tell someone at a party that you work at Google, or Apple, and see how they react.  Then tell someone else that you work at Universal Music Group.  Which is the better conversation?

But this is also affecting artists of every strata – all the way from Lady Gaga to the struggling DIY.  Oh, you can say that artists have more access than ever, or sing ‘ding-dong the major labels are dead.’  But so is the recording, and that is forcing smaller artists and labels to adapt however they can.  Songs have to be given away for free, with the hope that revenues will come from advertising, touring, merchandising, or content licensing.  Sure, some artists – like Datarock – are pulling it off, but most aren’t, despite all the rhetoric.

It’s just not that great of a model, but one the technology lobby absolutely loves!  Just recently at Digital Music Forum in New York, Michael Petricone of the Consumer Electronics Association was the one waxing about the revolution – not the content owners.  “There’s more music being made than ever before, there are more people listening to music than ever before, there’s more discovery than ever before,” Petricone said.  “Meanwhile you’ve got independent musicians coming up with innovative business models that allow them to support themselves.”

Of course, a lot of this is true – and tremendously exciting – but it’s just not the full story.  But as long as groups like the CEA can make that the dominant talking point, they can get away with murder.  Because without ripped-off content, the story on devices like the iPod would be totally different.  And the same goes for ISPs, Google, YouTube, and other high-flying technology giants.

There simply needs to be a better middle ground, but unfortunately, major labels are also a major part of this problem.  During a keynote interview at Transmission last month, UMG head of digital Rob Wells was talking about smashing piracy, and winning back countries like Sweden.  But he was also adamantly opposed to collective licensing options, simply because it would erode CD-like revenue streams.  It’s as if everyone wants 1999 to walk back through that door.

And not to pick on Wells; he’s just the latest to say it out loud.   Once upon a time, ISPs expressed some willingness to work with the music industry, but ultimately they got a middle finger back.  And throughout the past decade, the majors have also been guilty of refusing to give ground, and, for that matter, of launching endless attacks on both technology firms and consumers.  And guys like Doug Morris are still calling the shots.

But the major label system is dying, and maybe post-major discussions can be different.  Of course, we still have a huge chapter ahead that features a freaked-out Hollywood, but the hope is that interests can align to better compensate content owners.  Even if that means that creative industries – and their once-shiny rock stars – make less.


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