By Venkat Srinivasan’12
Cloud based media is currently in the cross roads similar to what the web was during the 1990s. The revenue as well as the mass adoption of cloud-based media is heavily dependent on the nature of relationships and consolidations that are going to take place over the next 1-2 years. With forecasts claiming close to 1 billion connected-devices, there is a huge potential for the cloud based media companies as well as the media content owners. PWC’s Global Entertainment Outlook underlines the huge potential available in this space; Consumer e-book revenue would grow from $4.1B to $8.3B by 2015, Video distribution would grow from $8B to $12B and recorded music revenue to jump from $9B to $12B by 2015
There are several stakeholders in the value chain of cloud based media distribution. Though the current ecosystem is very fluid, the key stakeholders are content companies, service providers, devices manufacturers and consumers. We will currently not take into consideration the traditional cable and satellite TV services, (though they do engage in on-demand programming such as Comcast’s Xfinity) as their core business is distribution of content via proprietary cable network.
Tech powerhouses such as Apple, Google, Microsoft and Amazon are garnering their entire intellectual asset as well as their relationship with the content owners to establish their supremacy over the cloud based media market. The cloud-based media currently can be classified into music, video, games/apps and books. The presence of a supporting device from each of these players cannot be ignored, as they are successful in locking the users into their eco-system. Currently, there are two kinds of cloud services offered to customers , namely storage and media. We would be currently dealing only with the cloud-based media services offered to customers. Apart from the tech powerhouses mentioned, services like Netflix, Hulu, Rhapsody etc. are major players in their respective spaces, but do not have associated devices to offer, which makes it tougher to vertically integrate their service. They might find themselves at the disposal of the device manufacturers when there are downward pressure on prices (like the recent row between the publishers and Amazon, where Amazon placed a cap on of $9.99 on eBooks). The Content owners or the media companies are finding a huge shift in their bargaining power as the technology companies are trying to disrupt the release windows as well as consumption on multiple screen delivery for the same price.
The future of content consumption is expected to be in TVs, PCs, Smartphones, Media tablets and Out-of-home screens. Though the death of television has been speculated, it has never been reflective in the numbers. Apart from the companies mentioned earlier, we believe that with over 800 million users Facebook would play a vital role in aggregating the content and facilitating social/usage recommendations to users. With the enormous amount of user data at the disposal of companies such as Facebook and Google, they would play undeniably huge role in the future of cloud based media consumption. Technology companies such as Amazon, Google, Apple and Microsoft who are in an attempt to vertically integrate the content distribution value chain (by being retailers as well device manufacturers) seem to be in a better position to pull customers, depending on their improvement in the customer experience.
The media industry is a concoction of fluid and experimental relationships and business models, currently based on complex licensing and distribution. The future business models for content distribution might be extremely unsettling as previously well-established norms in the media industry such as staggered release-windows and variable screen for multiscreen delivery might topple for good. The next 1-2 years might be a painful transition which gives the top players with significant partnerships to chalk the future business models as well distribution strategies and give an opportunity for artists and content owners to revalue their content and negotiate prices that are profitable for all the stakeholders in this value chain. We do expect around 3-4 years to completely transition to the new business model, while the legacy models of DVD and Blu-ray can be expected to stay during the transition period.
Blu-Ray, Is it the last Physical Media?
Blu-Ray might well be the last physical format for video consumption and distribution. To delve further into this we would need to measure the success of Blu-Ray in comparison to DVD or CD in terms of ubiquity in adoption. Blu-Ray never seemed to have caught up the imagination of an average viewer like DVD or a CD. There can be multiple reasons from proprietary distribution to availability of substitutes such as Netflix and other streaming services. If we analyze the reasons why consumers currently opt in for Blu-Ray it would be the quality of media, lack of user training for alternative sources (as user training is minimal when moving from DVD to Blu-Ray) and Blu-Ray content’s availability before online sources. Thus, the extinction of Blu-Ray would be heavily dependent on filling the gaps mentioned above. With better or equivalent quality of media made available online using better decoding and faster internet, Blu-Ray’s necessity is obviated. Similarly, if the media companies are able to come to mutually beneficial contracts to release the content immediately along with the Blu-Ray release, the need for physical media would be visibly reduced. With smart TVs entering the mass market and consumer awareness improving on these areas, the Blu-Ray could very well be the last physical media. However, for successful adoption on the mainstream market, this process would require more than 6-7 years. With Sony shipping close to 18.5 billion Blu-Ray players the end of the physical media is still not here yet. If the fate of Quickster’s or growth of cloud media services such Amazon, Netflix or Apple is anything to go by, then there is an imminent shift in consumer’s preferences towards cloud-based media.