by Marty Porter
Hollywood could have done a lot more to help keep Brian Dunn his job.
You don’t need to be reading this newsletter to find out that the Best Buy CEO was shown the door earlier today amidst lousy financial reports and following a blitzkrieg attack by Wall St. analysts. Growing online sales (aka digital media) was not enough to make up for a decline in TV and laptop sales (aka physical media). Meanwhile, Apple is devouring the entire consumer electronics category with their own products and their own stores — even though the blue shirts at Best Buy sell about 13% of their iPhones in North America.
It’s ironic too that the hottest CE category (connected devices) are the very products that are breeding the perceived demise of a big box house living in a commoditized, virtual world of mobile devices, apps and downloadable entertainment.
Probably Dunn was too much of an old-school retail guy anyway — having worked his way up from the store level over 28 years. If Best Buy is going to survive they’re going to need go Apple-style in their stores while they buy time building a digital strategy that the analysts will buy into — while we all, as a collective industry, figure out what we’re going to do when (not if) what’s happening to Big Blue happens to our own Big Blu.
Dunn’s ultimate ouster started with an article on Forbes.com entitled “Why Best Buy is Going out of Business…Gradually” .
This was matched by an equally vicious attack published on AOL Finance entitled “9 CEOs who Need to Get Fired” Read it here.
Wedbush Securities analyst Michael Pachter explained it best in a late last month when he was quoted as saying: “With the Internet and smartphones, we don’t need to shop at Best Buy to figure out which TV or electronics we want. Their solution may be good for 2011 but will be irrelevant by 2014. Technology is going to pass them by like they’re standing still.”
Pachter should have thrown in a few A-words (Apple and Amazon) while he was at it because there’s where all the money’s going — those are the retailers that are successfully fighting the lowest prices at Costco and Wal-mart with an elegant shopping experience combined with anywhere, anytime entertainment.
But remember — as a collective industry — we had a silent pact with all our retail partners; they’ll sell our discs as long as those discs are driving people into their stores. The fact that Dunn failed at his job doesn’t exactly make us look very good at holding up our half of the bargain.
was the first to spot the role of entertainment in Best Buy’s decline when it reported in a recent posting the fact that its entertainment category (games, DVD, Blu-ray) had dropped from 14% last Q4 to an ugly 20% decline this Q4.
So what do we do? A healthy physical retail presence for home entertainment is in everyone’s best interest. A mission of supply chain experts (digital and physical) need to start camping out in Richfield, Minnesota helping shore up their distribution backbone, while the marketing types need to spend some all-nighters creating a host of event-driven special Hollywood-style events for new releases. Meanwhile, the digital dudes have to accelerate their roadmap for the future — they need to quickly help Best Buy and all our industry’s retail partners build out their digital entertainment infrastructures so they can drive traffic to their new storefronts on the web.
In a world of where a none-company named Instagram gets $1 billion from Facebook — valuation is all about digital strategy. With Apple’s retail genius Ron Johnson off the short-list of potential execs as he recreates JC Penney, Best Buy is left nothing else by a digital play. Don’t be surprised when their new CEO comes knocking on home entertainment doors in Hollywood someday soon asking to know how we’re going to help him build web traffic moving forward — and when that day comes, we better have a really good answer — for our customer and for ourselves.
Latest ‘Call of Duty’ Installment Lands at Retail; Demand for Digital ‘Elite’ Service Overwhelms Studio
Annual installments of Activision’s “Call of Duty” franchise spell millions of discs for the video game business, and this year’s iteration, “Modern Warfare 3,” aims to be no exception. As The Wall Street Journal reports, this year is the first in which “Modern Warfare” is competing against Electronic Arts’s similarly-themed “Battlefield” game within the same release window. EA’s “Battlefield 3,” which debuted on Oct. 25, sold five million copies in the first week of its release; that’s roughly the number of copies that each of the previous two “Call of Duty” installments have sold on their first day of release.
The arrival of “Modern Warfare 3” also marks the launch of the “Call of Duty: Elite” service, which offers online game players exclusive digital content and social networking extras (premium subscriptions cost $50 per year). Activision’s Beachhead Studio, which develops and delivers the game’s digital content, said in a blog post early Tuesday morning that it had already registered “hundreds of thousands” of players for the Elite service. “Registration requests,” the studio said, “are exceeding even our most optimistic expectations, which is creating a bottleneck…[W]e are working around the clock to increase our capacity as quickly as possible.” More on the Elite rollout at Joystiq.
Announcing first-weekend sales for its new iPhone 4S, Apple that some 20 million customers have signed up to store content via the company’s free iCloud service, which launched last week.
The service encountered hiccups on Friday both in meeting general demand (via All Things Digital) and in recognizing shared accounts across multiple devices (via Ars Technica). But iCloud was fully functioning as of Monday morning, according to an Apple status page.
Apple also announced that it had sold than four million of its iPhone 4S, which the company launched in the U.S., the UK, and five other countries on Oct. 14. The phone will be available in 22 more countries on October 28; Apple is also set to launch a premium version of iCloud for music, iTunes Match, by the end of the month.
Apple began selling its Lion upgrade to the OSX operating system as a $29.99 digital download from its App Store today, one day after the company announced that its iPad business has overtaken revenue from Mac computer sales.
During its third fiscal quarter, Apple sold 9.2 million iPads, worth $6 billion in revenue, while it sold 3.9 million Macs worth $5.1 billion in revenue (tables at SplatF). Discussing the quarter’s results during an analyst call, Apple chief operating officer Tim Cook said that is was “clear” some of the company’s customers were purchasing iPads instead of new Mac computers. “But what really excites us,” claimed Cook, “is more customers chose to buy an iPad than a Windows PC” during the quarter (via ).
The Lion upgrade introduces iPad-inspired features to the PC interface; reviewing the performance of the OS as well as the digital installation procedure, The Wall Street Journal’s Walt Mossberg acknowledges Lion as a “big leap” from Apple’s previous Snow Leopard OS. “If you are willing to adjust,” Mossberg says, “it’s the best computer operating system out there.”
GameStop reported increased net earnings of $80.4 million for its first fiscal quarter (ended April 30), up 6.9 percent year over year, as comparable-store sales of pre-owned game products grew 9.5 percent.
Used games continued to represent GameStop’s largest source of gross profit — worth some $300 million during Q1 of 2011 — with a margin of 48%.
Among other highlights, the specialty retailer’s digital sales increased 53 percent over 2010, with each segment within the category experiencing “strong growth” during the quarter.
Sales of new release games contributed as well: the top five selling games for the retailer during the quarter were Nintendo’s “Pokémon Black and White,” “Mortal Kombat” from Warner Home Video Games, Capcom’s “Marvel vs. Capcom 3: Fate of Two Worlds,” “Call of Duty: Black Ops” from Activision, and THQ’s “Homefront.”
Sony’s PlayStation Network and Qriocity services have been offline for nearly a week, as the company continues to shore up its network security in response to an “external intrusion” on April 20.
“This is a time intensive process and we’re working to get [PlayStation Network and Qriocity] back online quickly,” said Patrick Seybold, Sony’s senior director of corporate communications, in an April 25 blog post. The company has issued no timeframe for when the services will be restored.
The Wall Street Journal notes that Sony is still investigating whether any personal customer information, such as credit card numbers, had been compromised in the attack. The shutdown has already held consequences for game publishers, with purchasers of new PlayStation titles such as Warner Bros. Entertainment’s “Mortal Kombat” deprived from playing the games over the three-day Easter weekend.
Packaged media distributor Cinram International continues to expand its digital operations with the hiring of studio veteran John Crosier as senior VP of digital architecture and delivery.
Crosier joins Cinram from Warner Bros., where he oversaw the studio’s digital supply chain as executive director of global operations. He also has led standards development efforts and other initiatives as digital ambassador for the industry’s DEG: Digital Entertainment Group. Cinram said Crosier will continue to work closely with the trade association.
“John brings a great perspective to our digital team,” said Cinram chief executive Steve Brown in a statement. “He has first-hand insight into digital supply chain and delivery methods to meet the ever changing needs of our customers.”
The hire follows Cinram’s acquisition of Los Angeles digital media specialist 1K Studios earlier this year.
Crosier, also based in Los Angeles, will be responsible for expanding Cinram’s digital services and overseeing its digital supply side mechanics. He will report to Brown and work in tandem with an executive team that includes Matt Kennedy, 1K Studios’ president, and Ben Higgins, Cinram’s VP of emerging markets and innovation.
Sony Computer Entertainment plans to broaden its digital videogame distribution efforts with the release of its forthcoming handheld system, code-named “NGP,” later this year, according to a top company executive.
In an interview with UK site MCV, Andrew House, chief executive of Sony Computer Entertainment Europe, says the company aims to make videogames for the new system simultaneously available in digital and physical media versions. “Just to clarify that, all games that appear physically will be made available digitally. Not necessarily all games have to be made available physically,” he says.
“Having the option of a digital-only method affords more creative risk-taking,” House adds, “because you don’t have that in-built risk of physical inventory.”
The NGP will employ proprietary flash memory cards and cartridges, with Sony leaving behind the Universal Media Disc (UMD) format of the previous Playstation Portable system. A specific launch schedule has yet to be announced.
The PC videogames market is rapidly approaching a 50-50 split between physical and digital distribution, and a recent digital release for Sony’s PlayStation 3 console has yielded “meaningful” sales, according to Electronic Arts chief John Riccitiello.
Speaking at a Morgan Stanley investor conference in San Francisco last week, Riccitiello told of the games publisher’s test with Sony to sell “Mass Effect 2” over Sony’s digital PlayStation Network, in tandem with the game’s physical debut for the console in January. “We did absolutely nothing to market” the digital version, he said. “Sony had never done a day-and-date release. They were very cautious about their infrastructure, so it was mostly a technology test.”
Yet the digital version would up accounting for a “double-digit percentage of total sales,” Riccitiello said, without divulging a specific figure.
While the market demand is apparent for downloadable versions of full-length videogames, the EA executive said that a broader digital distribution program on the PlayStation Network as well as Microsoft’s Xbox Live may be hampered by what he termed a “channel conflict” between the companies’ digital networks and physical goods business units. “They have got to manage…selling boxes at retail,” Riccitiello said, “and it’s generally a pretty thin margin business. And so they basically negotiate and leverage shelf space on the promise of making retail margin on software.”
More at IGN.
“I had the whole Beatles collection anyway,” laughs Bob Iger when Charlie Rose prods the Disney chief executive about his recent iTunes spending. “I ripped — legally — my Beatles CDs to my Apple devices. But then when it became available through the [iTunes] store, I bought that too — even though it was redundant. I got the album art with it.”
Yet Iger acknowledges in his March 3 appearance on the show that few entertainment consumers these days are such “nuts” as he.
Digital distribution models for films — including electronic sell-through and video-on-demand — have all grown “nicely,” Iger says. “But while it’s grown fast, it hasn’t gotten large enough to make up for the loss of the sale of physical goods.”
Iger estimates that the DVD industry is down by roughly 15% year to year. “But people are still buying a lot” of discs, he maintains. “They’re not buying as many of them. And I’d argue the primary reason for that is that they have other things to do….I look at my kids’ generation, and it’s not just about watching TV or a movie at home — it’s doing other things.”
The changing dynamic of the home entertainment market leads Iger to qualify digital distribution’s long-term prospects. “Whether the whole [digital movie distribution market] will ultimately get larger than what it was before, when we were just selling DVDs, I don’t know. We’ll see growth in international markets, as technology expands. But you’re still facing a more competitive world.”
Bertelsmann’s arvato digital services has added British software retailer as its first customer in the UK for arvato’s RED software e-distribution platform.
Using arvato — one of two authorized Microsoft e-distributors in Europe — Downloadbuyer is now able to offer its retail customers the full range of Microsoft Windows and Office products in download form.
Under RED, which arvato launched in Europe last summer, manufacturers enlist their products just once to the cloud-based distribution platform to make it immediately available through online consumer retailers. From the store’s perspective, the service eliminates the need to strike e-distribution agreements with individual publishers, as well as the need to build a download management infrastructure.
“This solution gives for the first time online retailers like ourselves a truly level playing field with which to compete with the major brand leaders,” says Jon Silvera, managing director of Downloadbuyer.com.
At issue is whether royalties for digital downloads are the same as those labels have traditionally paid for physical media sales. Reviewing the dispute between F.B.T. Prods, which discovered rapper Eminem, and Universal Music Group, Aftermath Records, and Interscope Records, a federal appeals court held in September that digital downloads were licenses, not sales, and hence subject to royalty rates as high as 50% (via The Hollywood Reporter).
The labels have petitioned the U.S. Supreme Court on a procedural question, but if the appellate court ruling stands, it could hold broader ramifications for digital media distributors.
Electronic Arts is on track to sell $750 million worth of full-game downloads and other digital content this year, accounting for 20% of the company’s annual revenue, CFO Eric Brown said at a UBS investor conference in New York yesterday.
The publisher’s digital business, which spans games for social networks, smartphones, and console systems, is largely based on “organic” franchises such as Madden NFL and FIFA soccer. “We think we’re growing most rapidly in DLC for the console; the majority of our growth — 85% — is organic versus acquired,” Brown said (via Gamasutra). But the executive also noted that growth opportunities remain for packaged media as well: “We think digital starts with the disc and the high-definition platforms.”
Action flick “The Expendables” sold a combined 3 million units across DVD, Blu-ray, and digital download in its firat week of release, according to studio Lionsgate (via PR Newswire). The movie, released Nov. 23, debuted at number one on DVD rental chart, and topped the firm’s Blu-ray sell through chart as well, with a combo pack of the film that includes Blu-ray and DVD versions as well as a digital copy. In addition, Lionsgate says, the release came out of its first weekend as the top movie download on iTunes, Xbox Live, Amazon and the PlayStation Network.
A dispute between Level 3 Communications and Comcast over content delivery fees may prove to be less about net neutrality principles and more about securing leverage and position in the emerging market for digital entertainment.
Level 3 is balking at having to pay a recurring fee for Comcast’s accommodation of an expected surge in streaming video traffic. The surge is likely to come from Netflix, for which Level 3 will serve as a primary content delivery network (CDN) provider beginning Jan. 1.
With the Federal Communications Commission (FCC) and Department of Justice continuing their scrutiny of Comcast’s proposed merger with NBC Universal, any hint of anti-competitive practices by the country’s largest cable provider could weigh on the regulators’ decision.
In a statement alerting media to the dispute, Level 3 notes that it is fundamentally one of the Internet’s several “backbone networks” through which entertainment content travels on its way to consumers’ homes.
“By taking this action, Comcast is effectively putting up a toll booth at the borders of its broadband Internet access network, enabling it to unilaterally decide how much to charge for content which competes with its own cable TV and Xfinity delivered content,” says Thomas Stortz, Level 3’s chief legal officer. “This action by Comcast threatens the open Internet and is a clear abuse of the dominant control that Comcast exerts in broadband access markets as the nation’s largest cable provider.”
Level 3 has agreed to pay the fees, under protest. But the company says it is approaching open-Internet regulators and policy makers in Washington about the matter.
In response, Comcast says that Level 3 has mischaracterized the dispute. “Comcast has long-established and mutually acceptable commercial arrangements with Level 3’s CDN competitors in delivering the same types of traffic to our customers,” says Joe Waz, the company’s SVP external affairs and public policy counsel. “Comcast offered Level 3 the same terms it offers to Level 3’s CDN competitors for the same traffic. But Level 3 is trying to gain an unfair business advantage over its CDN competitors by claiming it’s entitled to be treated differently and trying to force Comcast to give Level 3 unlimited and highly imbalanced traffic and shift all the cost onto Comcast and its customers.”
Prohibitively high CDN fees could have net neutrality implications if the cable provider was shown to be effectively blocking its customers from accessing new Internet-based video services. But the issue here is perhaps more analogous to the retransmission fee negotiations that cable providers and broadcast networks have drawn out in public (most recently Cablevision and Fox).
All of these negotiations are bound to take on new levels of complexity as other companies launch would-be Netflix rivals – streaming video services that potentially compete with cable operators’ own TV channels and on-demand services.
Broadcast network-backed Hulu Plus, for instance, recently exited its beta stage and lowered its monthly subscription price. Apple and Google continue to court content companies to endorse their respective TV concepts. And next year could see Microsoft join the fray with a pay-TV service of its own for Xbox 360 consoles and other connected devices (via Reuters).
A new 184-page report published by the European Commission’s Joint Research Center surveys the position of European technology companies and service providers in emerging online and mobile videogame markets. The center concludes that the videogame industry — which has developed markets for casual games and virtual worlds despite divisions among European Union members on issues such as copyright and consumer privacy — could help shape policy toward the development of online and mobile commerce in other sectors, such as health and education. The report is available for free download at the center’s site.
As it turns out, Apple didn’t have much of a surprise in store for those who closely watch the digital space — but it’s good news nevertheless.
At long last, the Beatles have arrived at iTunes. Shoppers can purchase individual tracks ($1.29 each), albums ($12.99 each), or the band’s entire collected output ($149.99). The latter set contains the same material as record label EMI marketed last year in mono and stereo CD editions, both of which are still widely available.
The digital albums are exclusive to iTunes through some time in 2011, an EMI spokesman tells All Things D.
Without the Beatles (and a handful of other legacy acts), the iTunes store was incomplete. Sure, the notion of “completism” has evolved from 2004, when Apple introduced the digital-boxed-set concept as part of its pivotal iPod marketing partnership with U2. As any fan of the Netflix or Pandora Radio apps for iPhone/iPad would agree, today’s entertainment services want to be more complete in the breadth and depth of content they offer.
But consumer takeup of such access-oriented services is not mutually exclusive with their continuing desire to own copies of their favorite movies or music.
Today’s Apple announcement, then, is essentially in furtherance of increasing availability. And you know that can’t be bad.
The digital distribution business continues to gain global ties, with leading Chinese online video site Tudou seeking to raise up to $120 million in an IPO on the Nasdaq stock market, according to an SEC filing (via paidContent). The site currently hosts user-generated clips, licensed videos from Chinese broadcasters, and original content; moving forward, the question is whether it will seek to add Hollywood-produced entertainment as well. paidContent reviews Tudou’s fundamentals, while Forbes analyzes China’s competitive profile.
Consumers will spend some $966 million on e-books in 2010, with the annual market positioned to grow to nearly $3 billion by 2015, research firm Forrester reports. A relatively small consumer segment drives the e-book business: only 7% of online adults who read books read e-books, Forrester says. But that group also spends the most money on books, out of all consumers — and already reads 41% of books, on average, in digital form.
paidContent’s profile of Lovefilm, the so-called “European Netflix,” reveals that one cannot make an exact, bit-to-bit comparison between the two companies’ respective businesses. For one, Lovefilm rents videogames as well, an area Netflix has never explored. In addition, disc rentals still dominate Lovefilm’s business, though the company maintains a growing streaming service; Netflix chief executive Reed Hastings recently characterized his business as “primarily a streaming company that also offers DVD-by-mail.”
But with the digital distribution market heating up, analysts are looking at Lovefilm (whose primary shareholder is Amazon.com) as a prime M&A candidate. paidContent has the company’s fundamentals.
Currently, two-thirds of all Americans (67%) say they watch television shows primarily on television, while 5% watch them primarily or mostly on their computer, according to new data from Harris Interactive. Filtering responses by age yields a much different picture: roughly four in five adults age 55 and older watch primarily on television (84%) compared to less than half of those age 18-34 who do so (48%).
When it comes to cable versus network television, there is an even split. Three in 10 Americans (30%) say they watch shows primarily or mostly on network TV, while three in 10 say they watch shows primarily or mostly on cable (29%); one-third (36%) watch cable and network shows equally. While four in five U.S. adults (82%) believe that network television shows will always be a large part of Americans’ viewing habits, two-thirds (65%) believe people will watch more television on cable than on the networks in the near future. One reason may be quality: half of Americans (51%) say cable television shows are much higher quality than network television shows.
Redbox made no announcement of a third-party partner for streaming video subscriptions yesterday, contrary to analyst predictions from earlier this week. But the Coinstar-owned company did say that it would add a Web-based rental service to its network of DVD kiosks next year.
Redbox is in talks with several potential partners for the digital service, the Los Angeles Times reports. Amazon.com and Walmart are among the top partner prospects for Redbox’s digital offering, according to Merriman Curhan Ford’s Eric Wold. The analyst had looked for Redbox to make a more detailed announcement during Coinstar’s earnings call yesterday for its third quarter ending Sept. 30.
Nevertheless, Coinstar shares were up 21% this morning, after the company reported a 149% operating income increase to $29.7 million. DVD revenue itself grew 54% from the previous year, to $305.5 million, while revenue at existing kiosks increased 17% year-over-year. Redbox kiosks now number 28,900 nationwide.
More on the timing calculations behind Redbox’s digital strategy at paidContent, which speculates the kiosk network may be taking a longer view than expected on streaming to gain better deal terms — or simply to see whether/how the market for streaming video services shakes out over the next few months.
The Entertainment Identifier Registry (EIDR) aims to simplify consumer transactions for digital entertainment with an identification standard for content that’s functionally similar to the UPC code for packaged goods and the ISBN system for books.
Leading the new, nonprofit coalition are the major studios’ MovieLabs initiative; cable operators’ CableLabs group; and firms Comcast and Rovi. Backers include Deluxe, Universal Pictures, Neustar, Paramount Pictures, Sonic Solutions, Sony Pictures Entertainment, Walt Disney Pictures, Warner Bros. Entertainment, Motion Picture Association of America, Civolution, Vobile, and INA (L’institut national de l’audiovisuel).
The registry, which is expected to be available to member companies in early 2011, will catalog and assign a single, unique ID unit to movies and TV assets (from feature-length programs to clips and composites) that can be used for both physical and digital media. Content producers will gain efficiencies in postproduction and distribution by using the standard, EIDR says, while content distributors will gain greater assurance that the right assets/products are being distributed to consumers.
The organization offers a whitepaper on how the registry works at http://eidr.org/whitepaper-download/.
Strauss Zelnick, chairman of Take-Two Interactive, sat with the Bloomberg television network yesterday to discuss the game publisher’s view of digital distribution’s growth prospects. “Right now,” Zelnick said, “digital distribution of our interactive entertainment represents something less than 15% of our revenue, and that’s clearly growing.” Yet for the publisher of titles such as “Red Dead Redemption” and “Grand Theft Auto,” packaged media still comprises the bulk of the business. “We have huge file sizes, and it’s pretty hard [for users] to interact with huge file sizes where latency issues are meaningful if you’re entirely in the cloud,” Zelnick said. “But there are companies that are doing a phenomenal job of addressing that challenge, like On Live.” (Take-Two supports Internet-based games service On Live with console titles from its 2K Games and 2K Sports units.)
Video of the Zelnick interview — in which the executive, discussing the latest Facebook privacy issues, also suggests game publishers themselves are the best suited to police consumer privacy rights — at Bloomberg.com.
Announcing its fiscal fourth-quarter results yesterday, Apple said it sold 4.19 million iPads for the three months ended Sept. 25, 2010. The sales figure represented a shortcoming for some Wall Street analysts, who were looking for Apple to move as many as 5 million iPads during the quarter. But few attribute the discrepancy to lingering supply issues or slack demand.
JP Morgan’s Mark Moskowitz notes that the nominal disappointment was due to “elevated” investor expectations after the tablet’s strong start in April (via ). Adds Oppenheimer analyst Yair Reiner: “Notwithstanding the short-term vicissitudes of the expectations game, Apple clearly has a winner on its hands….We continue to expect an extremely strong December quarter from the devices thanks to a combination of holiday seasonality; channel expansion in the U.S. (Walmart, Target, AT&T, Verizon), and international distribution beyond [the iPad’s] current 27-country footprint.”
Meanwhile, Apple — which posted a net profit of $4.31 billion in its most recent quarter — said that it is sitting on more than $50 billion in cash and investments. Accordingly, analysts such as Gleacher & Co.’s Brian Marshall looks for the company to make a large acquisition, possibly in the digital media distribution space (via Bloomberg).
• The iTunes Store topped $1 billion in revenue during the quarter, sequentially flat with previous quarters.
• Jobs said that Apple has sold some 250,000 Apple TVs since the company relaunched the device in early September (via NewTeeVee).
The Steam digital videogame distribution service, marketed by “Half-Life” publisher , has seen year-over-year new user growth of 178%, pushing its total number of active accounts to more than 30 million.
More than 1,200 games for PC and Mac are now offered via Steam’s online store, Valve says in a statement. Peak simultaneous player numbers, meanwhile, are up to over 3 million, with more than 6 million unique gamers accessing Steam each day.
Valve does not disclose its unit sales over the past 12 months, but says that sales via Steam have have increased by more than 200%, marking the sixth straight year of 100%-or-better unit sales growth. To meet increased demand, the company recently upgraded its infrastructure to run at 400Gps.
Valve president Gabe Newell says, “The year has marked major development advances to the platform with the introduction of support for Mac titles, the Steam Wallet and in-game item buying support, and more. We believe the growth in accounts, sales, and player numbers is completely tied to this work and we plan to continue to develop the platform to offer more marketing, sales, and design tools for developers and publishers of games and digital entertainment.”
Ahead of Apple’s earnings report, PC World digests the conflicting estimates on the number of apps the company markets. The company may have “passed” the 300,000th app milestone, although some observers say a sizeable chunk of the app aggregate are currently inactive. Another datapoint being bandied about: some two-thirds of apps are paid.
Marking the launch of its MediAffinity digital library management service, Technicolor says it has signed The Weinstein Company as one of its first content management customer.
MediAffinity clients access the automated service through a Web interface to archive and securely distribute library content. Weinstein Company EVP/CTO Lew Rothman says that the direct control the Web portal offers was the deciding factor in the company’s selection of the service.
The producer can initiate automated digital media workflows with the service, including transcoding and delivery of content files and rich metadata to licensees and distribution partners such as Xbox, Amazon, Sony and Singtel. Assets ingested for The Weinstein Company, whose recent theatrical releases include “The Tillman Story” and “Piranha 3-D,” will be available on a searchable basis with streamable proxies for each asset.
Release at MarketWatch.
Digital distribution services provider INgrooves says that it has received a “significant” injection of capital from Shamrock Capital Growth Fund II, a private equity fund focused on media, entertainment and communications investing. The investment, INgrooves says, will allow the company to expand into ancillary media verticals such as eBooks and make strategic acquisitions in the digital music industry.
With the closing of the Shamrock investment, Shamrock joins Universal Music Group as a minority shareholder in the company. Financial terms were not disclosed (release via PR Newswire).
INgrooves also says that it has extended the term of its distribution agreement with Universal Music for the digital delivery of UMG’s North American catalog to online and mobile retailers within the territory. The label group has been utilizing INgrooves’ ONE Digital platform to manage the distribution of some of its content since making a strategic investment in the company in March 2008.
By John Konczal
Digital distribution and sales models are top of mind for almost everyone in the media business. While I believe the potential for new business models enabled by digital media is real, I think there is real reason for concern that revolves around how your business is going to manage the potentially considerable growth in new sales partners and channels that can now be enabled through digital media.
Digital media simply makes it easier for new sales channels to integrate, market, sell your products. And this can create a potentially huge problem for your business: how do you manage all of these partners to ensure a positive impact on the top and bottom line.
Digital distribution brings with it the digital sales model, or more specifically, settling for sold digital media between an electronic retailer and a media publisher. So revenue only becomes recognized by the publisher when it understands what the e-retailer has sold and settles with the e-retailer for payment based on a pre-established royalty agreement.
Sounds easy enough — you send me your information and I will process it. Well, not so easy when you think of just how complicated the exchange and processing of digital sales data can get.
Think about exchanging data with potentially hundreds of partners sending you millions of transactions in a variety of data formats that must be collected, processed (meaning validated and interrogated), and routed to the proper accounting factory for managing the settlement process.
This issue is keeping the CFO up at night — and she is getting more irritable by the day from the lack of sleep — and no one wants that. She wants to know if this digital sales model is supported by an infrastructure that can scale to support the data volumes and the processes in place to ensure the timeliness and accuracy of the digital sales data flow, to ensure settlements and associated payments are made accurately and on time.
Well, there’s good news for her, because today there are digital sales data exchange solutions in the marketplace that do exactly that through a single file gateway that manages all the sales data moving to and from those partners no matter what format they want to use. This means more revenue, more profit, and the fulfillment of that entire digital media potential. Read more about how to solve this challenge.
Ted Mico, EVP of Universal’s Interscope Geffen A&M division, tells website Digital Music News that his label group now earns 70% of its revenue from digital formats. A recent release from Interscope artist Eminem could mark the first time the company records sales of 1 million digital albums. But all is not lost for physical distribution: “We’re actually selling CDs as well,” Mico adds.
Speaking at Oracle’s OpenWorld conference this morning, Zynga CTO Cadir Lee revealed some statistics about the social gaming company’s massive backend operation (via TechCrunch):
• Approximately 215 million users play Zynga games worldwide each month;
• That user base translates to Zynga properties such as FarmVille moving 1 petabyte of data daily;
• Zynga adds as many as 1,000 servers every week to accommodate growing traffic.
TechCrunch quotes Lee as stating that the game publisher employs a hybrid private/public cloud infrastructure to power its own data center operations.
During the first six months of 2010, 11.2 million PC games were purchased online via digital download — 36.5% more than the 8.2 million physical PC game units purchased at retail during the same period, according to the NPD Group.
The period marks the first time that digital downloads comprised the majority of total PC game unit sales. However, games sold at physical retailers continue to maintain a greater share of dollar revenue, at 57% (versus 43% from digitally downloaded games). NPD attributes the trend to a higher average selling price at retail.
Overall, the PC game market is down, with combined unit sales of physical and digital versions declining 14% in the first half of 2010, compared to the same time period last year. Overall revenues, meanwhile, are off 21%.
“One major finding from this latest report is that the ‘big got bigger’ in the first half of 2010, with both Steam and Bigfish capturing a bigger share of full-game PC games digital download sales than they did last year,” says Anita Frazier, industry analyst, The NPD Group. “The overall decline of PC games when combining sales via both digital downloads and physical retail sales is impacted by the expansion of social network gaming as well as the continued expansion of free game options.”
A report issued by fellow research firm Interpret earlier this week compared digital game distribution in the first quarter of 2010 with the same period last year, and found only a slowing growth rate. But that report took all game genres into account, from PC platforms to consoles, as well as online casual game portals.
Downloadable videogame publisher Gameloft says it recently surpassed the sale of its 20 millionth paid game in Apple’s App Store, a little more than two years after the store launched in July 2008. The company has released 18 games for the iPhone and 29 games for the iPad since the beginning of this year; 25 of these titles have captured the App Store’s No. 1 spot.
Gameloft’s milestone adds some color to Apple’s recent claim that it is selling more hand-held videogame devices than Sony and Nintendo combined, as All Things Digital points out.
Research Firm: Despite ‘Moderate’ Growth in Digital Game Distribution, Physical Retail Remains Relevant
Eight in 10 gamers (80%) do not purchase games digitally; but the 20% that do purchase more games at retail than their non-downloading counterparts, according to research firm Interpret.
Gamers that digitally download titles also purchase 2.7 games, on average, every 6 months at retail locations — 20% more retail purchases than those who never buy digitally.
“Whether or not all game sales are digital in 10 years, right now the virtues of the retail environment, including convenience, trained sales staff, and the opportunity to encourage impulse buys, are as important as ever,” says Interpret’s Brenton Lyle.
A federal appeals court in Seattle recently held the terms of a commercial software publisher’s end user license agreement (EULA) to bar the software’s resale by the original consumer. On its face, the court’s decision in Vernor v. Autodesk brings business software in line with the entertainment media business, where digital distribution models have already begun to supplant the “first sale doctrine” of physical media.
Larry Downes, a nonresident fellow at the Stanford Law School Center for Internet & Society, argues on CNET that the Vernor v. Autodesk case reinforces a shift in information consumption that “has already happened” for software publishers. The shift, Downes says, is a good thing. In the entertainment space, “as consumers overcome their emotional attachment to ownership and embrace the rental model, subscription and rental services for all kinds of content are becoming increasingly popular.”
But ownership still has its applications — and its defenders. The Electronic Frontier Foundation (EFF), which filed an amicus brief in the Vernor case, criticizes the Ninth Circuit Court of Appeals for essentially finding that a software publisher can gain the rights of a licensor by labeling software their sales as “licenses.” The Vernor court’s test could make quick work of the first sale doctrine if entertainment software (viz. videogame) publishers ever pushed for its adoption.
According to the EFF, “The Court held that the copyright’s first sale doctrine – the law that allows you to resell books and that protects libraries and archives from claims of copyright infringement – doesn’t apply to software (and possibly DVDs, CDs and other “licensed” content) as long as the vendor saddles the transfer with enough restrictions to transform what the buyer may think is sale into a mere license.”
EA’s “Madden NFL 11” looks to be the top-selling game in North America for the month of August, with the publisher estimating sales to be up by approximately 5% year-over-year across all platforms for the month.
Digital revenues for the game are up by more than 200% year-over-year, EA said, on the strength of a virtual-trading-card mode called Madden Ultimate Team.
“Madden NFL 11″ gamers have averaged more than two million online connected game sessions each day, according to the publisher. Nearly 20% of all online play has been logged on a new 3-on-3 multiplayer feature, Online Team Play.
EA also is taking the franchise into the social gaming arena with “Madden NFL Superstars,” which launched on Facebook Aug. 31.
Google is in talks with major studios to launch a paid movie streaming service on YouTube by the end of the year, according to the Financial Times. Streaming movies would cost about $5, and titles would be available on the same day as their release on DVD and other Internet video-on-demand channels, according to the Financial Times’ unnamed sources.
YouTube has long viewed itself as a potential partner with studios not just for film advertising and promotion, but digital distribution as well. In January, YouTube tested $3.99 streaming movie rentals of five independent films in a campaign with the Sundance Film Festival.
Microsoft’s decision to distribute review copies of its hotly anticipated “Halo: Reach” as secure downloads via the Xbox Live Marketplace appears to have had unintended consequences.
A hacking team claims that it was able to circumvent security on the Xbox Live servers to gain access to the videogame’s full download, according to game site . The hackers have no plans to distribute the leaked copy to the public, according to the report. But other game sites have spotted BitTorrent versions of the game being shared on several P2P portals.
“Halo: Reach” is slated for official release Sept. 14. Microsoft posted the game to its Games on Demand service on Aug. 16, according to Joystiq, making “Reach” available in its entirety to select media reviewers who received a 25-character “pre-paid token” from the company.
A Microsoft spokesperson tells Joystiq that it is “aggressively investigating” the purported security breach.
As Joystiq and CNET point out, the incident would be the latest in a line of pre-release leaks surrounding the “Halo” franchise. Previous incidents include the theft of “Halo 2” codes from a disc manufacturing plant in 2004, and the early release of “Halo: ODST” by a retailer in 2009.
One common thread running through entertainment companies’ Q2 earnings is the continued decline in DVD sales.
Some companies, such as Time Warner, say that the tweaking of home entertainment release windows will bring improvements. Others, such as the Walt Disney Co., look to restructure their theatrical release windows to maximize home entertainment revenues. Meanwhile, digital distribution of movies via VOD and Internet-based streaming continues to emerge.
Such initiatives, however, may not be enough to allay investor fears that studio profitability may take a greater hit than expected in the near term. The Wall Street Journal has a roundup of recent perspectives.
Reporting yesterday afternoon, Electronic Arts reaffirmed its full-year outlook, saying that revenue from digital content will drive overall industry growth.
Reuters reports that while EA expects industry-wide sales of physical videogames to decline this year by 3%, the company looks for 7% overall growth off of revenues from downloadable and mobile content.
EA’s own digital business (including wireless, Internet, and advertising) increased 52% year over year in its first quarter, with net revenue of $188 million.
Apple says it recorded sales of 8.4 million iPhones during its third quarter, a year-over-year unit increase of 61%. The iPhone 4, launched three days before the end of the quarter, accounted for 1.7 million units of that total, as MarketWatch . Analyst concerns that consumers would hold off on iPhone purchases until the release of the new model appear to have been unfounded.
Apple also began selling iPads during the quarter: total device sales topped 3.27 million units. Meanwhile, iPod sales declined 8% during the quarter to 9.41 million units.
In its earnings call yesterday, Apple executives insisted that they did not create supply shortages of the iPad and iPhone 4 to generate buzz – but that in any event, the supply problems were good ones to have. More at paidContent.
Digital distribution platforms for home entertainment (including video-on-demand) outpaced Blu-ray Disc in consumer spending during the first half of 2010, passing the $1 billion mark for the first time, according to new figures released by DEG: The Digital Entertainment Group.
Electronic sell-through increased up 37% year-over-year to $285 million between January and June, as video-on-demand (VOD) rose 19% to $865 million, for a combined growth of 23% to $1.1 billion.
Sales and rentals of Blu-ray discs, reached a combined total of $982 million for the six-month period. Blu-ray sell-through increased 84% year-over-year to $733 million during the half.
Blu-ray disc shipments topped 77 million units in the first half of 2010, nearly double the number of the comparable period in 2009, according to figures compiled by Swicker & Associates on behalf of the DEG. Household penetration of all Blu-ray compatible devices, including set-top players, PC drives and PlayStation 3 consoles, has now reached 19.4 million U.S. homes.
Overall consumer spending for the first half of 2010 in the home entertainment window for pre-recorded entertainment — which includes DVD, Blu-ray Disc and digital distribution — reached $8.8 billion, off 3% compared to the same period in 2009. Yet consumer transactions for home entertainment products were up 2% for the first half of the year, DEG says.
Packaged media sell-through, which includes DVD and Blu-ray Disc, declined 7% year-over-year during the half. But the rate of decline slowed to 3% during the second quarter.
Rental spending was down nearly 5% to about $3 billion between January and June, says DEG (citing Rentrak Corp.’s Home Video Essentials). The trade group faults Movie Gallery store closures for the decline, while noting that kiosk revenues increased 55% during the six-month period.
Redbox President Mitch Lowe hints at the company’s online plans in an interview with Bloomberg, saying that the addition of a Web service to its kiosk network could broaden the company’s DVD library beyond an ever-rotating, 200-title roster in some 24,000 kiosks nationwide. Questions still abound as to what Redbox exactly will offer online, and who the company might partner with for a digital transition. But the big issue is whether Redbox would (or could) bring its disruptive $1-a-night model to the still-emerging digital distribution business.
As part of a sponsorship between Microsoft’s Xbox and the Syfy cable TV network at Comic Con next week, the videogame publisher will distribute video of Syfy’s show panels and screenings over its Xbox Live network. Broadcasting & Cable has more on the tie-in, which is a first for Syfy (itself a Comic Con mainstay for the last 10 years).
Content delivery network Highwinds is scaling up with its acquisition of Internet infrastructure services provider BandCon. Customers of the two privately-held companies now have access to an international network with 2 terabits per second of edge capacity and more than 70 points of presence (POPs) worldwide.
Recent entertainment projects for Highwinds include providing content delivery services for 19 Entertainment’s online reality series, “If I Can Dream.”
Microsoft has confirmed that sales of entertainment content and virtual goods over Xbox Live have surpassed the game network’s subscription business. That likely means the company earned more than $600 million in movie and TV show downloads, as well as purchases of avatar accessories for games, in its fiscal year ended June 30, Bloomberg reports (via ).
As , Bloomberg bases its estimate on Microsoft’s statement that half of the company’s 25 million Xbox users pay $50 a year for a premium subscription to the Xbox Live service.
When combined with subscription revenues, entertainment downloads would put Microsoft’s Xbox Live revenues past $1.2 billion for the most recent fiscal year, exceeding analyst expectations.
The company will report its annual earnings July 22.
Prince fed the beast for many a tech blogger yesterday when he carped to the UK’s Daily Mirror that the Internet is “completely over” for music distribution — a medium as “outdated” as MTV. The artist’s latest album, “20Ten,” will be exclusively available on CD in print copies of the British newspaper this coming Saturday.
Most digerati flatly dismissed Prince and his comments as irrelevant. But Kara Swisher of All Things Digital reads Prince as making an oblique point regarding digital distribution. Namely: after a decade of disruption, content owners have yet to hit upon digital revenue streams that collectively surpass the boom years of the packaged media business.
In the end, iTunes may not offer the Artist an advance, but the average Internet consumer won’t offer him a violin either.
Film production company Relativity Media asserts its options in the emergent age of digital distribution, and Netflix asserts itself as a potential pay-TV contender, in an exclusive deal that will bring Relativity films to Netflix’s streaming audience “just months after their DVD release.”
Netflix chief content officer Ted Sarandos explains the context in the company’s PR: “Historically, the rights to distribute these films are pre-sold to pay TV for as long as nine years after their theatrical release.” The movies-via-pay- TV business is currently dominated by the likes of Starz Entertainment — which Netflix has partnered with to stream first-run films since late 2008.
Among the first wave of films covered by the Netflix-Relativity deal are “The Fighter,” starring Christian Bale, Mark Wahlberg and Amy Adams (distributed by Paramount Pictures), slated for release later this year. Current Relativity releases include “Salt” (distributed by Sony’s Columbia Pictures) and “Get Him to the Greek” (distributed by Universal).
The Wrap made hay of its exclusive on the news yesterday, noting that pay TV deals can net a major studio $100 million a year in revenue. The Netflix-Relativity pact “is believed to be on a par with or better than” major-studio terms, The Wrap reported.
Deadline Hollywood, meanwhile, throws water on the idea of deal being a game changer: “It’s hilarious to think [it] will make HBO or Showtime or Starz or Epix shudder, especially as they continue to move away from showing movies and more towards original programming.”
Inception Media Group — the Santa Monica, CA-based production and distribution company launched late last year by Image Entertainment veteran David Borshell and former HBO Video acquisitions SVP Andy Reimer — is expanding its digital division to offer “electronic packaging” and digital delivery services to post production facilities. The new services provide post houses with the ability to deliver encoded content to digital online retail and VOD platforms, including iTunes Film and TV.
In June, Inception announced that it had closed its first revolving credit facility with City National Bank, enabling it to finance short-term working capital requirements and acquire revenue-generating content.