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Wednesday, February 02, 2005

Extracting Value from Digital Content

(Via Knowledge @wharton) The effect of digital content and new technology on the entertainment and media industries is:
a) a devastating body blow;
b) a profit-spewing bonanza or
c) the creation of a promising market in its infancy.
The answer is all three, depending on whether you are talking about the beleaguered music industry, the fortunate movie industry or the cable business's hopes for digital cable. That was the message from an industry panel discussion at the Wharton Marketing Conference. The panel was moderated by Marshall Cohen, a media research veteran who spent 12 years at MTV and is now a member of the private investment firm Pilot Group.
The record business sales have contracted by 25% over the last four years due to music piracy by computer file sharers. "In the days of analog technology, record companies were printing money,""But these days the Internet is forcing a big change in the way business. gets done. The record industry's lack of foresight and its dearth of effective countermoves to piracy. Should aim at doing a better job of convincing young people that music is worth paying for. Multiple, noncompatible encryption standards are hampering the industry's attempt to earn revenue from the downloading of music.
Jay Reinbold, vice president at Warner Home Video. Hollywood is swimming in cash from the sales of DVDs, which leverage content from theatrical releases and TV series into a digital format. DVDs have become the fastest-growing product in consumer entertainment, with U.S. sales of more than $14 billion expected this year. By 2008, U.S. sales are expected to more than double and worldwide sales could approach $45 billion. When DVD sales surpassed the take from theatrical box offices last year, they upended the financial equations of the industry. "DVD sales are now a primary consideration in making motion pictures," said Reinbold. As downloading of movies becomes more feasible, Hollywood will embrace it. But the industry has little incentive to hurry the pace of change. "DVDs have such large profit margins, we don't want to give them up." Feeding the growth in the market is consumers' interest in owning a library of DVDs.
Hollywood's love affair with the DVD is hrting the growth of digital cable, said Page Thompson, vice president, marketing, of New Video Products at Comcast Cable Communications. That's because movie studios typically won't make a movie available to cable operators' video-on-demand services until 30 to 45 days after that same movie is available in a video store. The movie studios naturally fear cannibalization of DVD sales by video-on-demand, but Thompson argued that this fear is misplaced. "There is actually a halo effect," he said. "If you promote the movie through video-on-demand, sales will go up at retail outlets. It's all about raising consumer awareness." Comcast sees the future of the company hinging on the success of video on demand, which lets customers choose what they want to watch and when to watch it. "The personalization of TV is the future," said Roberts,CEO of Comcast recently. Cable's biggest challenge is that customers have a hard time mastering its relatively complicated technology features. Many current users don't even know how to do basic navigation of the system. That problem of technology fluency may be surmountable with younger customers With more complicated services, the cable industry is trying to educate customers that there's more to cable than additional channels He believes that a tipping point for digital cable may come next year when he thinks interactive TV will start to take off.
The recording industry, meanwhile, is trying desperately to find a way to get people to buy more music CDs. The music industry is not in control of its own destiny, but rather is under the influence of technology companies such as Apple Computer.

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