Q3 2008 Consumer Application Software Market Overview
The most significant change broadband is bringing to the market is that it is opening up consumer markets. For decades, only corporate users have been able to afford data services. The Internet quickly used this new development to create an enormous number of consumer applications. Broadband improved the quality, allowing for video-based applications, and, just as importantly, it made access to digital media affordable to the mass market.
Today the revenue generated from the large range of digital content and services is rapidly increasing globally. A huge array of video content is now also available from the Internet, from small User-Generated clips to full feature length films. However, while there are certainly opportunities for 'TV and VoD' applications, media centers in the home are also playing a key role in delivering the new Digital Media. Requiring a digital TV, home media centers combine applications such as DVRs, home networking, CD/DVD playback and MP3. Cable TV operators, telcos, consumer electronics and IT companies are all vying for the media center business.
In the digital media realm, we saw deals focus on digital content, content management, content delivery and rights management, and online content services such as Best Buy’s announced acquisition of Napster.
There is no doubt that the market for video games remains hot, even in these turbulent times. Nintendo, for example, has recorded remarkable gaming hardware sales over the past few years. The Japan-based video game giant saw total shipments for the Wii hit 18.6 million units for the fiscal year and more than 5 million units were shipped in the latest quarter. And while the Wii often grabs headlines, Nintendo’s portable game unit, the Nintendo DS, has sold more than 77 million units worldwide since it was introduced in 2004 and has become the most popular handheld video game platform of all time.
The market for video games is diverse, ranging from subscription-based fare with complex graphics, including World of Warcraft, to simple electronic versions of board games, such as Scrabble. In 2007, U.S. domestic box office spending for movies reached $9.6 billion, according to the Motion Picture Association of America's Theatrical Market Statistics report. Spending on PC and console video game software alone, excluding hardware, accessories and subscriptions, reached $9.5 billion, according to the Entertainment Software Association. In 2008, game revenues will approach $40 billion, according to a July 2008 report by IBISWorld. The company also predicted that video game industry revenues would jump more than 60% by 2013 to $63.2 billion.
On the business side, any time you look at any industry’s fastest growing sector, you will see aggressive M&A as companies begin to position for leadership. This merger fever is unlikely to abate. Games companies have been growing rapidly and are rationalizing acquisitions as a way to continue strengthening themselves. As game companies continue to bulk up to compete, game designers will be well placed to make the most of the new technologies, new business and delivery models, and the expanding base (not the old stereotype) of players.
Digital Content
At the beginning of 2008, Corum proposed a series of expected trends in digital content - among them were application delivery to mobile users, community development in the SDKs, and the reshaping of end-user experience. With the overwhelming exposure in this sector during the last few months, we felt it would be appropriate to have a look at how some of these trends have come to play.
We initially proposed that Apple, in the midst of a crumbling DRM situation and heightened threats from online content distributors, could face some troubled times without greater innovation (or acquisition) to fill the gaps in their offerings. A deal which should put some pressure on Apple is Best Buy / Napster. While Best Buy already has a working partnership with Apple, the Napster buy would help it to better compete with Apple's iPod and Apple's iTunes music service, which currently holds a roughly 70 percent stake of the digital music market. The Napster deal will also pit Best Buy in stronger competition with Apple and Amazon, which recently added the digital music offering Amazon MP3 to its portfolio. The Napster purchase comes on the heels of Best Buy opening Best Buy Mobile as "stores within stores" in its 970 retail outlets last month. Where our assumptions were undermined was in the significance of the iPhone AppStore and its integration with Apple’s content delivery/management system, iTunes. As it turns out, the AppStore was nothing short of explosive – with over 100 million apps downloaded in the first 60 days, ranging in price from free to over $100. While mobile content stores have existed in some form for quite some time, Apple has created a sensation that is already being mimicked by some of the other major mobile OS vendors, namely Google’s Android.
With its upcoming release, Android presents a promising alternative to the iPhone, Blackberry, etc. Frankly, we are far less interested in the T1 device that will initially house Android, than the OS itself. Google looks to offer an infinitely customizable platform, with all the development and content distribution capabilities of its competitors, while still being interoperable on most mobile sets. We expect a relatively slow initial ramp-up, with significant market penetration in the coming years.
In bringing more content to the user, Tivo has finally cracked the PC, starting a partnership with multimedia software specialist, Nero. While websites like Hulu, Joost, and YouTube have certainly proven the consumers’ interest in free online video viewing, Tivo looks to compete more directly with Amazon, NetFlix and Apple by offering a subscription-based program that allows access to all of Tivo’s normal content and famous functionality, as well as a list of partners like Rhapsody and YouTube.
Of course, content might never reach the end-user if we didn’t have the tools to experience it, which is why the launch of Adobe’s Creative Suite 4 has designers, publishers, producers, et.al, salivating over the new features and extensive list of updates. Now that a few years have passed since the Macromedia acquisition, Adobe is really pushing the Flash integration and mobile device authoring, realizing the potential market in these spaces could soon outweigh some of their traditional graphic/design/publishing offerings.
Within a week of launching CS4, Adobe also announced the acquisition of YaWah ApS, a dynamic imaging software provider based in Aarhus, Denmark. The acquisition will help to further the expansion and development of Adobe Scene7, the hosted rich media platform designed for eCommerce and multi-channel marketing companies.
We believe the major digital content vendors are currently in a re-growth phase, evolving the delivery method, refining the management, archiving, data collection, and ultimately redeveloping the consumer experience. In the end, content players are having a significant impact on shaping the media, entertainment, and mobile industries.