June 2011 Archives

In this issue:

• Music: Pandora is not worth $2.5Bn
• Video: Sony Films off Netflix - is $8/month sustainable?
• Cable: Virgin Media Vs the BBC in UK platform battle
• Telco: can Vodafone raise its Pay TV game in Germany?
• Publishing: Barnes & Noble Nook takes on Amazon
• Books: Harry Potter disapparates from publisher's grasp

Music: Is Pandora worth US$2.5bn? Short answer: "No"

Pandora, the largest internet radio broadcaster floated on June 16th at US$16 valuing the company at over US$2.5bn. Currently the share price stands at US$14, which implies the Stock Market thinks it is overpriced. Gigaom has the lowdown on the 11-year battle for survival of Pandora.

Our Take:

The Pandora business model is flawed and doomed to fail. While 1.6bn listener hours by a 34m active customer base may seem impressive, the crucial problem lies in Pandora's content acquisition costs which are highly variable. Effectively the more people use Pandora, the more they have to pay. The business model just doesn't scale and is destined for a future of low, if any, margins.

Digital Entertainment 2.0's analysis of how Apple's iCloud, iOS5, and MacOS developments build value and control for Apple's digital platform, and their consequences on other parts of the digital ecosystem.

Introduction

Apple provided a glimpse into some of the upcoming new features of its key software platforms iOS and MacOS at its WorldWide Developer Conference (WWDC) in June 2011. Also, Apple announced its much anticipated move into providing cloud based services and away from using the PC as the controlling hub.

iOS and MacOS are Apple's key software assets - the assets which add soul to Apple's key money spinning devices (iPhone, iPad and Mac). iCloud is the first iteration of the missing third leg - the software that ties all the devices together seamlessly. Together iOS, MacOS and iCloud are both the differentiator for the consumer and the barrier-to-entry for competitors. They are the soul of the Apple overall platform.

For the Digital Entertainment 2.0 team, the main fascination is examining how the Apple platform is evolving and more importantly how new features affect others in the value chain: namely the various distributors including mobile operators, aggregators, content creators and of course end consumers. Nearly every main feature launched seems to support our general theory that Apple is squeezing value from the aggregators and distributors and pushing that value into the device manufacturers (i.e. them).

As Apple only presented the top 10 features of both MacOS and iOS, we present below the top 10 features in the new releases of iOS, MacOS and iCloud, and explain how we think they create value for Apple and their impact on other parts of the digital ecosystem. The rest of this article covers:

1. iMessage - killing SMS softly
2. iTunes in the Cloud - getting one up on Amazon
3. Notifications - Apple robs Windows Phone and Android advantage
4. MacOS Software - Apple shuts out other retailers
5. Newsstand - Appeasing Publishers (to a degree)
6. MobileMe - just 'making it work' ...and building the moat
7. iCloud and Video Services - holding fire for now
8. Activation - Cutting the PC cord
9. Photo Stream - yes, but why?
10. Data Centre Economics - making a start

In which Digital Entertainment 2.0 reviews the YouView specifications

Delegates at the recent Digital Entertainment 2.0 events would have seen a fascinating couple of sessions on future TV. Will we (as LG suggested) have multi-screen TVs, with screens dedicated to high definition video, meta-data, and to social content? Or will the role of "social TV" be fulfilled by an independent "companion device", as former YouView CTO Anthony Rose suggested?

[Ed: There's more on these themes in our recent YouTube: Recent Improvements Change the Game note and our new analysis on UltraViolet,the content industry's answer to iCloud and Amazon Cloud Drive]

On the other hand, as we've been saying for years, the move of mass-audience TV onto the Internet is constantly testing the technologies and business models involved. Even if the growth rates are not as ferocious as first predicted, they are still higher than overall traffic and the content itself is getting higher quality. How will we push all those packets?

In the UK, whenever there has been a technology transition in broadcasting, there has always been one institution that has acted as a leader - the BBC. Its great rival in this has to be BSkyB - think of Sky+, Sky HD, and Sky 3D. On the BBC's side, there's decades of work in the core trades of TV, developing the basic infrastructure, pioneering TV on the Web with the iPlayer, and some interesting side projects like the BBC Micro. The two of them have contrasting and perhaps complementary specialities - as the pay-TV challenger, Sky is fascinated by adding more features to TV, while the BBC as a public service is all about infrastructure and universal reach. When a little-known Racal division called Vodafone needed a radio planner to build their GSM network, they poached John Causebrook straight out of BBC Research.

After much tortuous negotiating with the regulators and the other TV stations, they have finally got a specification out for a common platform for the next generation of STBs, YouView. If it gets deployed, it will shape the future - so is it any good?

Digital Entertainment 2.0 recently had to make a long train journey, so we grabbed the 229-page technical specification and got stuck into it.