Monday, 25 October 2010

Taking a slice of Apple's pie

There have been a raft of recent announcements about new digital content stores launching, which got me thinking about whether we are about to see some real competition to I-Tunes.

Apple’s position as the dominant global retailer of digital content has to date been unchallenged.  With an active user base of over 500 million I-Tunes users,  sales of over 250 million IPods, over 70 million IPhones, and 3 million IPads (in 80 days) Apple has been the natural choice both for customers wanting to enjoy the choice and convenience of consuming digital content and for rights holders wanting to exploit digital distribution opportunities.

No other retailer has come close to Apple’s the 10 billion music downloads and 3 billion Apps downloads.  With the IPad  sales & Apple profits well above forecast, new features & enhancement being added to I-Tunes, and many of the world’s leading media companies committing to work with Apple to develop new digital categories (like E-Publishing), the momentum behind the I-Tunes ecosystem seems (at least superficially) unstoppable. 

So why are consumer electronics & software companies like Sony (with their new Qriosity platform) , Samsung (with the Media Hub initiative) and Microsoft (with the Zune service) now betting they can carve out profitable businesses as digital content retailers & compete effectively with Apple*.

The reason is that in every genre of digital content Apple is exposed to attack.

In the digital music market, the transition to DRM free downloads means that consumers are no longer locked into I-Tunes ecosystem.  Consumers will be able to shop around for their music whilst continuing to store and manage their collections on I-Tunes.  Labels will work hard with competitor retailers to make sure consumers feel like they have a real choice.

In the TV programming and film space, the consensus view is that the market will only take off once there is a mass market device for viewing digital content on the TV set. Apple has yet to deliver it.  Players like Sony and Samsung with their strong market position in TV hardware, and incumbent TV platforms (like Sky and DirecTV) are perhaps in a better position to deliver a breakthrough service.  With this in mind, expect new digital content stores coming to market to major on TV & film content.

In E-Publishing, market immaturity means that any device / storefront combination could end up dominating.  The momentum is currently with Apple, already supported by a critical mass of leading publishers who are hoping this market will take off.  However it will be at least 18 months before we know whether competitor tablets can mount a serious challenge.

So the reality is that Sony, Samsung, Microsoft (aswell as the as yet unannounced initiatives from Amazon, Google and other industry players) all have a chance of challenging Apple’s dominance in premium digital content. 

Given the enormous growth potential in digital consumption of TV, film, music, books and other media there is still a big prize to play for. 

The winners will offer a simple & intuitive customer experience which seamlessly connects between device and store, attractively priced content libraries & hardware, and a brand and communications voice that resonates with the mass market.  To deliver all this will be quite a feat, and requires new organisational structures, new competencies & executive talent, and exceptional strong leadership.

So how should media & rights holders be responding to this evolving market landscape.  

Content owners should plan to be promiscuous forming relationships with a variety of distribution partners.  Energy should be focused on partners that have the scale, ambition and senior management backing to become major players in the market.  Business Development should reflect a view on what players you would like to see in an ideal market scenario.

Deals should be structured in the spirit of partnership with the objective of delivering a sustainable business for the new content stores.  Wherever possible distributors should be given breathing space to show momentum without being weighed down with very high fixed costs.  At the same time media owners should aim to retain a reasonable level of input in the pricing, packaging and promotion of their content.  This approach will help to foster real competition amongst whilst ensuring content does not become commoditised .

Finally content owners should be willing to experiment with new commercial models.  We are moving into an era where digital storefronts will increasingly use content as means of selling hardware, data access or other products and services.  Bundling will open up new markets for media owners, but care should be taken in deciding what content is offered within bundles & in its positioning to customers to ensure willingness to pay for premium content is not impacted.

This new era of competition should (I hope) make the digital pie a lot more appetising, with Apple as one of many flavours to choose from.

For further details on these initiatives see

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