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:: 09 the future of Media & Entertainment
Digital Media & Home Entertainment
09 the future of Media & Entertainment 10/21/2003 1:02:10 PM

September 2003


To make a fair prediction of where the future of Digital Media and Home Entertainment is heading, an analysis of its history is imperative. There are major lessons to be learned from the past, since many initiatives failed to succeed while some became a huge success. In this article I will go into more detail on the successes and will try to extrapolate the trend into the near future. While putting down my thoughts on paper, it turned out to be a lengthy piece, but I think it contains enough information to hold your attention.

A short history of Home Entertainment in the late 20th century

In the sixties it was quite common to have a TV set, a radio and a record player in the living room. TV and radio came in through the air (or in some early cases through cable), while vinyl records were bought in the record stores. Radio and TV were sponsored media and practically for free, music was totally non-sponsored and consumers had to pay for the content itself, by means of paying for its physical carrier. In the seventies, the compact cassette became widespread and many record companies feared this would be the end of mass record sales. It did not turn out that way, primarily because consumers wanted the 'real thing' and record sleeves also played a part in the emotions of owning a specific title.

With the introduction of the video recorder, the movie industry expressed the same fears, but the new market for video rental (and later video sales) did not turn out to be cannibalistic. Even better, this new market generated so much new revenue that movie companies suddenly discovered new business models that enabled them to produce titles that otherwise would never have been profitable.

With the rise of the CD in the early eighties, practically replacing the old vinyl record, there was some concern regarding the replacement market. After all, vinyl scratches or gets broken, while CDs potentially have an indefinite lifetime. There is indeed a classic example of this phenomena: Pink Floyd had a permanent position in the Billboard hot 100 with their album 'Dark side of the moon', simply because the huge crowd of Floyd aficionados bought a new record every two to three years, due to the deteriorating sound quality. As soon as the CD version of 'Dark side of the moon' hit the market, Pink Floyd dropped out of the Hot 100!

Physical distribution versus network distribution

In the eighties, PCs where generally available, but very few people were willing to spend a substantial sum on a device which was only able to produce relatively simple and stand alone output. With the introduction of HTML on the Internet (which itself already existed for decades!), PCs suddenly had a new function: a home entertainment and communication centre. In my opinion, this single element is responsible for the overwhelming success of the PC ever since. But with the upcoming of the Internet a new channel was introduced, that of electronic distribution, rather than physical distribution. As it turned out, this new form of content distribution had a major impact on consumer behaviour in regard to media and home entertainment. And on top of that, the availability of the home PC to youngsters in the family opened the way for a whole new industry in the media and entertainment branch: computer games.

Why Napster and Kazaa became such a success

And so, suddenly there was Napster, a peer-to-peer file sharing network. People could download every imaginable music title, enabled by a new compression standard called MP3. And they did, in gigantic numbers often exceeding millions at a time. There are many specialists and insiders who blame the file sharing sites like Napster and KaZaa for the sharply declining record sales world wide, but I think there is more to it than that.

Pop groups in the sixties were, in retrospect, musically quite illiterate and were experimenting a lot, with changing success. In the second half of that decade, the singer/songwriter became very prominent and as it turned out, the composition was actually the major factor in success. In the seventies, pop musicians came of age and mastered their musical abilities, while the industry had not as yet caught on. In the eighties, however, the music industry as a whole saw its chances and started to mass market all kinds of concept groups while, at the same time, record companies turned their established acts into mega stars filling stadiums and selling by the millions. The driving force behind this movement consisted of many independent production units and management firms, who conceived the new marketing concepts.

In the nineties, this trend slowly transformed the music market into a battlefield of 'one hit wonders', more often a marketing campaign than a genuine artistic effort by the musicians themselves. But even then, the composition was in most cases the differentiator between success and failure. This mechanism lead the consumer into an ad hoc buying pattern, with by now more loyalty towards a specific song than towards the artist himself. And even today, acts come and go, but very few really stick for more than two or three years (Robby Williams possibly being the only positive exception to this rule). And as the saying goes: 'the song remains the same', in this case referring to the fact that once proven hits re-occur every ten to twelve years, helping yet another one hit wonder to the top.

So exactly which need did Napster and KaZaa fill, in the current music market? CD and CD single prices are relatively high, partly due to the fact that music is still a non-sponsored media type. If you like a particular song, it is much easier and definitely far cheaper to download it from the internet and burn it onto a CDR (yet another technical enabler!). The alternative would be to buy the full CD or the CD single, with the probable result that you end up playing just the one track it all comes down to. But there is also another side effect of file sharing networks. Certain titles, especially older ones, are very hard to come by on a physical medium. On file sharing networks, however, practically every title ever released can be found, downloaded and burned on CDR. And all this for free as well, a package hard to beat!

Copying music has been possible from the early seventies, but the reason it has grown to such immense proportion as today has probably everything to do with the ease of electronic distribution, combined with a gigantic title library. So it is not only the copying facilities, but rather the distribution possibilities that are driving the file sharing trend. In general, one might argue that the gigantic choice of title is perhaps a stronger driver for file sharing activities than the fact these titles can be obtained for free.

Some concerns about the future of the music industry

Since the early days of modern music, the record companies have been the breeding ground for new artists. Money earned with major successes is partly re-invested in developing and marketing new acts, with the main purposes of filling the title catalogue and creating continuity. When revenues drop due to declining record sales, less funding can be allocated to development of new artists. And moreover, when artists of world fame start marketing there own products, this situation will only become more critical. Of course the Internet provides upcoming artists with a new way of promoting themselves, but this could lead to an non-transparent sea of new titles and acts, subsequently leading into the discovery of new artists one likes becoming quite time consuming. Falling revenue due to declining record sales and major artists branching out on their own could mean a dangerous downsizing of the breeding of new acts. After all, if the record companies are no longer able to invest in such activities, who will step in?

Will the movie industry follow the fate of the music industry?

As compression standards improve, e.g. DiVX, it will become easier to download a complete movie, maybe some day in the near future just as easy as a music file. With the furious growth rate of ADSL subscriptions, the consumer seems to be readying himself for this coming trend. Recent experiments with a new TCP protocol have resulted in an increase in transfer rate by a factor 6000! This would result in a download time for a multiple gigabyte movie file of just a couple of seconds. Of course the movie industry has every reason to worry!

Advancements in music recording equipment have lead to lower production costs for music, but the production budgets for movies only tend to rise. With the introduction of yet another baffling digital video effect device, the standard for special effects only increases and movie productions get more and more complex. The mind boggling fees that popular movie stars get for feature films does not help much either. The Return on Investment for a major movie production becomes a very delicate exercise, and movie companies cannot allow themselves mistakes. The illegal digital distribution of a new title in sufficient viewing quality can be fatal.

The relationship between content owners and consumer electronics manufacturers

Since many decades there has been a strong bond between content producers and consumer electronics manufacturers. Philips has been a long time owner of its own major record company (Polygram, later to become Universal Music Group) and Sony early on became owner of Columbia records and films. The underlying reasoning for this construction was the notion that you have to be able to provide a large enough title catalogue for a specific technical standard in order to make the related consumer device a marketing success. But through the years, the creative divisions and the CE divisions of many multi-nationals tended to go their own way. While the creative factories tried to protect their assets, the CE manufacturing divisions constantly came with new CE devices which were able to copy these assets freely. With the introduction of the Internet, and therewith the introduction of easy and fast electronic distribution, devices able to copy onto a digital medium became ever more threatening. The market launch of the writable DVD will accelerate this trend.

Protecting the entertainment industry in the future

Securing any media asset, which is under the protection of copyright, on a network level is quite useless. The workings of the Internet with its hundreds of millions of users cannot be controlled any more, whatever the effort might be.

So if electronic distribution is the malevolent factor in all this and can no longer be controlled, it is time to go back to the copying aspect. The only way content creators can secure their valuable assets is by packaging them in a secure container that can only be opened by the appropriate device under the right circumstances. These circumstances would consist of (amongst others): the consumer has legal access to the content, has paid for it, and will not illegally distribute it any further than allowed under the business rules as defined by the content owner. This implies a joint effort by the content creators/owners and the CE manufacturers, to come up with a system that can securely package content, only to be opened by CE devices that are compatible with this system.

The beauty of it all is that digitizing media assets enables such a scheme, because securely packaged content can also be distributed by a physical digital carrier such as DVD. The absolute ground rule to make it work is that all content owners package their assets right from the beginning of the market life cycle and comply with world wide standards. These standards will have to be formulated by the major content owners and the world wide CE manufacturers, the sooner the better. The good news is that such initiatives have already been launched.

What is in it for the consumer?

The possibilities of networked distribution have had a enchanting effect on the modern consumer. The living room of today is moving towards a wireless network environment in which all kinds of compatible devices will be linked with each other, together forming a 'home domain'. Exactly to which geographical magnitude this home domain reaches is actually insignificant. It might incorporate the car stereo or even the TV and sound system used in a remote holiday location. Again, if the content itself is protected by means of a secure container, the location of the content becomes irrelevant. It might even circulate on file sharing networks, without the threat of being illegally copied.

Many experts claim that the introduction of Content Protection and Digital Rights Management systems will only frustrate consumers. I wonder why, because if the consumer sticks to the rules, he or she might never notice any difference with the old situation. Of course, if a consumer wants to copy and distribute to his or her own liking, thereby breaking the rules, he or she may be confronted with some hindering side effects. But is that not a common risk when one breaks the rules?

There is no stopping the wireless interconnected home domain, it will emerge, with or without the support of the content industry. But if it happens without their support, it could very well turn out to be that this home domain will lack proper content! If content owners and CE manufacturers can come up with a transparent standard for Content Protection and Digital Rights Management, the consumer will actually gain a lot in the form of a huge title offering as well as a platform on which many new consumer services will become possible. Video On Demand is a widely discussed potential new application and, seen in the light of the widespread success of video rental stores, might indeed be the killer app. Still, to succeed, it needs a large title catalogue with the blessings of the content creation industry. Sounds familiar?

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