StrategyEye Views

Publicis Modem MD, Sebastian Dreyfus, on future trends in online advertising

StrategyEye has launched the first in a set of interviews with leaders in digital media - getting their opionons on trends and novel business modles in the digital media environment.

The first of these to be published is with Publicis Modem MD, Sebastian Dreyfus.

Read the full interview here :

INTERVIEW: Publicis Modem MD, Sebastian Dreyfus (StrategyEye)

Couple of significant soundbites from the interview include:

Digital advertising continues to grow as proportion of budgets ...

"... cannibalisation of ad budgets moving to the digital world is increasingly up. One major international client has moved from about 9% of their media spend online to 60% within the space of two years. The average spend is about 40-50% nowadays."

Social Networks are still struggling to offer consistent ad interfaces and concern over "privacy intrusion" is stalling investment ...

"We are finding traditional advertising banners are not working on social networks for a couple of reasons. It's partly because there is little consistency across platforms - that actually limits your ability to get a return on investment. In addition, when people are on social networks they are engaging in things that are for them and are not looking to go off to another site. At the moment, I'm very cautious with my clients about going on social networking sites because if you get it wrong you irritate people by coming into a space that you're not necessarily invited to. We're looking at developing and trying to roll out widgets as there's a genuine value exchange there."

Future interviews coming out from StrategyEye include with CEO of Dailymotion and Last.fm to name a few - to suggest a company CXO to interview please contact me at nickg@strategyeye.com.

iPhone - successful launch night or not??

Last night was heralded as "iPhone day" when Carphone and O2 stores would go crazy and stay open late to cope with the expected hundreds of eager customers who just could not wait until the light of morning to get their hands on the new iPhone as it debuted in the UK.

Except there seems some confusion as to whether that actually happened or not.  From early reports it seems like many curious people did indeed venture into stores to find out what all the fuss was about - but perhaps in far fewer numbers than anticipated - and even fewer put their hands in their pockets to part with hard cash. Mobility Site has its own take on the low level of people attending and the initial reactions of some of the shop staff in London.

As we commented yesterday, there are a number of issues which may affect the iPhone over here in the UK versus the US.

However, the issue over pricing is a key one given the number of very cheap deals now on offer on other phones - and without the additional cost of having to actually pay up for the device hardware itself.

As Rafat's team in MocoNews comments:

The iPhone, out today, is a handset aimed at the music-, movie-loving “youths” who were the subject of this day-long session, but the pricepoint set by O2 (minimum £35 ($70) monthly and £269 ($538) for the device) may be too prohibitively expensive to reach that very market.

O2 may have gone some way toward flat-rate data pricing, but £35 ($70), £45 ($90) and £55 ($110) monthly is way out of the reach of many hard-up students, the chap warned. That’s against $60 per month (£30) and $399 (£200) for the handset on America's ATT. With two hours to go before the die-hards queuing on the streets of London are let in to buy their iPhone, how many of them will really have the petty cash to stump up?

From early noises it sounds like they didn't want to stump up right now. It will be interesting to see what Saturday brought in terms of numbers.

We have no doubt Apple and O2 will get the formula right but it will be interesting to see if they slash the price as quickly as they did in the US to give a catalyst to sales - as well as signing other WiFi partnerships  - Apple drops iPhone price, adds WiFi iTunes and signs Starbucks partnership.

The latter partnerships may well be the element needed to drive home to consumers the fact that while it's expensive, has a poor camera, some texting issues - once connected to the web over WiFi it is probably an entertainment device that will beat all others - and should not really be assessed in the same bracket as a Plain Old Mobile Phone.

Apple’s iPhone: a mobile toddler with a lot of growing left to do

With the launch of iPhone in Germany earlier today and its imminent release at 6.02pm in the UK on O2 (with their expectations of 200,000 sold by Christmas), I've attached below a quick recap on some recent commentary from Aleksandra Bosnjak, our new lead telecoms, media and technology analyst.

Aleks has just joined from Ovum and wanted to be more impressed by the iPhone if she was being honest - “It’s a cool toy,” she says of the new iPhone. “But that’s it.”

It has many great features, but some serious weaknesses. The end result is a second generation mobile phone in a third generation market.

“From the European consumer’s point of view, this is a toddler product without the sophistication of some of its rivals. Many of the iPhone features are wants not needs. It whets consumers’ appetites, rather than satisfies their hunger.”

One major flaw is that it does not support 3G.

“This is a typical Apple launch in that from a European consumer point of view, it’s a premature product with some technological weaknesses.” Aleksandra says there are content application weaknesses too:

• the iTunes WiFi store does not support podcasts, ringtones and videos – all key mobile content applications.
• Apple “locks” users into its products: it only allows Apple headphones and does not support over-the-air downloads.
• A weak camera. “The 2.0 pixel resolution is very low compared to other new cameras, and Europeans are used to 3.2 pixels or even 5 as standard.”
• No multiple texting option - something that may irk some of the more text-obsessed European teens
• BlackBerry addicts may find the keyboard interface a little tricky to reel off long, quick-fire messages [although in the US (more crackberry addicted than here) did not seem to worry too much with the take-up of the iPhone over there]
  

“As for its strengths, this does build on Apple’s superb design and marketing heritage with a cool look that triggers two senses for the consumer – sight and touch. It also allows users to search their music library.”

he also commends the big display and relatively easy internet browsing capabilities. Aleksandra says the iPhone fits into the broad Apple strategy of driving users to its so-called “connected home”,  In other words, it’s about Apple’s push to dominate consumers’ home entertainment space and provide a range of Apple multimedia products which will transform the way families enjoy their leisure time at home, and on the go. The launch must be viewed in this context.

“In our view, the iPhone is just another example of a ‘connecting’ element – and possibly the most critical one – in Apple’s quest to conquer the home market through its devices, content and digital content distribution."

“We believe that Apple’s key challenges in the UK and the rest of Europe with this product  will be to fight consumers’ price sensitivity and to reach out to mainstream, picky mobile users who want full content portability rather than a partial service, however sexy it may appear.”

While iPhone is obviously going to be the cool device to own, the other device manufacturers are up for a spoiling fight. Note, however, that while iPhone has some basic "flaws" (if one dares call them that ...) their general progress in creating devices that ultimately are so user friendly that they dominate the market should not be overlooked. I only have to point to a post today by Om Malik to show that the attempts by Nokia et al to crash the iPhone party have EVEN more flaws than the iPhone :-)

   

EMI, Apple - two steps forward but one step back in consumer confusion??

FINALLY!! BUT IS IT ALL A BIT CONFUSING ...?

This has to be one of the biggest 'Game Theory' dilemmas faced by music industry excecutives who've been dragged into a world they hoped they'd not have to address for many more years.

So one of the record labels (and the one most often criticized for being head-in-the-sand) has taken the brave and long-overdue step to drop DRM on their downloads ...

The arguments were always there that this could not happen - however, it is slightly refreshing to see that EMI has stuck a first flag in the ground on this and seemingly swallowed it's pride in the war between Apple and the record companies over DRM.

This is by no means solving the problems for the record industry and the lacklustre response from the market shows that the record labels still have a long battle. EMI shares are hardly up on the news today and at 229p are still way down from c315p last July. In contrast, Apple is trading at almost $94 from around $50  last July.

There are a few unknowns thrown up by this EMI / Apple deal which be interesting to watch closely :

 

A - More or less confusion?

 

Whilst both Apple and EMI always proclaimed (with differing merits) that they were there to support the consumer, this deal does seem to slightly fly in the face of that - at least when compared to Apple's prior positioning as the champion of ease and simplicity.

 

Sure, you can play these tracks on your Zune or Creative players which is a general plus, but there is now a premium to pay for non-DRM files under the EMI/Apple announcement - $1.29 for DRM-free and $0.99 for the normal DRM-files. Bringing in the suggestion of a difference in quality if you buy the cheaper or more expensive file (when quality difference is probably imperceptible to most people on the move with their white headphones ...) and you have scope for a lot of confusion - a shame when iTunes and iPods were all about ease of use and simple pricing up until now.

The consumer was also already confused by what on earth DRM actually meant - and when it was sort-of-buried in the background of iTunes no-one really worried as long as it downloaded and played on their iPod as if by magic. Raising DRM or Non-DRM file brings back the horrible three-letter acronym into the home domain and will no doubt scare off some people tentatively thinking about now buying online. Some good comments from Resnikoff on this.

 

B - Download price has gone up!

 

$1.29 - a 30% hike from $0.99 was not what most people envisoned when they talked about DRM-free - and seems to go against the grain of a market that was coming to terms (at least in some quarters) with paying a sub-$1 fee versus $0 on Limewire. But we should be glad we've at least broken some of the mould and got something out in the market without DRM and now have a test sample to watch ...

 

 

C - Does this blow the whole music industry - or actually spur more purchases??

 

All will be watching now is just whether the market will now be 'swamped' with free, legitimately-downloaded EMI tracks that people happily forward and consume without worrying one iota about fact that it's been ripped off.

 

Or whether (as I would like to believe) this 'leakage' acts as a marketing pull and drives more traffic back to Apple et al as people want to easily buy other songs from the band in question.

Sure, some kids will always take some pride in getting something for free, but the ease of use of iTunes relative to other services (especially Limewire or others where experience can be very patchy) surely must mean that for a large proportion of the music buying public this is easier than constantly pestering friends to forward their tracks over to you every time???

Of course, for the ubiquitous iPod playback of DRM files was no big problem anyway, but if we do start to see more Wifi-connected  etc players emerge from other manufacturers that you might want to blast your music out of this is the start of something in the right direction at least ...

Hundreds of comments on this from all angles ... amongst the more interesting we picked up included  Rafat Ali - EMI Drops DRM for New Premium Line-up.

StrategyWire comment ...

"EMI will make its entire digital catalogue available as high-quality, DRM-free downloads.  The move enables consumers to play EMI's digital music on all portable media players, mobiles and home entertainment devices without restriction.  Apple's iTunes Music store is to be the first online music store to provide EMI's music in DRM-free format.  The music will be available in high-quality non-DRM version for USD1.29 or standard quality version USD0.99 with DRM.  In addition EMI music videos will be available from iTunes Store DRM-free with no change in price.  Albums of EMI artists purchased through iTunes will automatically be sold DRM-free, high-quality for the same price as existing albums.  The DRM-free, high quality music is billed as a premium product.

EMI will make the recordings available for all music stores at the same wholesale price.  Each store will be able to choose the encoding format (AAC, WMA, MP3 etc) for the music.  EMI Music will still continue to use DRM for services such as subscription-based music, super-distribution and ad supported.  DRM has been shown to frustrate consumers when music purchased through one service does not work on the consumer's mobile device.  EMI CEO Eric Nicoli stated that EMI believes the high-quality tracks playable on any platform will boost sales.

When questioned about keeping DRM on standard quality music in the press conference for the announcement, both Apple CEO Steve Jobs and EMI CEO Eric Nicoli stated that the two versions provide consumers with choice, consumers that want higher quality, DRM-free music have one product while consumers that are not worried about DRM or quality but are price sensitive have another product.  EMI CEO Eric Nicoli sees the DRM-free music as an important commercial step in EMI's turn around.

Downloads of EMI's individual tracks will have a price differential between high quality. DRM-free and standard quality, no such differential exists for the albums.  This should been seen in the context of digital music selling relatively few albums compared to individual tracks.  The lack of price differential is seen as a method to boost album sales along with Apple's recently announced top-up measure. Apple is not the only music service that is going to benefit from the removal of DRM. Currently, eMusic is limited to independent labels willing to provide their music DRM-free.  EMI's move will allow eMusic to significantly grow their music catalogue by allowing them to offer a major label's music and consequently attract a wider audience of consumers to their service.

The multi-format availability of the music is likely to see music stores progress to a format that is playable on the greatest number of devices, eliminating the chance for consumers to pick the wrong format for their device.  MP3 and AAC remain the leading candidates as both are supported by a wide range of portable media players, home entertainment devices and mobiles, far more than other encoding formats such as WMA (Windows Media Audio) or ATARC (Sony's audio encoding format).  The move could also see a shift to the mainstream of open source, royalty-free audio encoding formats, such as Ogg Vorbis and FLAC."

EA and Nettwerk One partnering to create new music company, Artwerk

StrategyWire view - EA and Nettwerk One partnering to create new music company, Artwerk

Continuining the blurring of lines between content genres as youthful consumers start consuming in all sorts of digital channels, games developer and publisher, Electronic Arts, is joining record label Nettwerk One Music in the creation of Artwerk, a new music company. No deal terms were disclosed.

The two companies say the new label will sign and develop new and established artists for publishing, master recording and sync deals as well as distribution both physical and digital. Artwerk has signed producer artist, Junkie XL, which has tracks on EA's 'Madden NFL 07' and 'Need for Speed Carbon', and it is negotiating with other artists who will have their works featured in future EA titles, as well as on film and TV distribution channels.

Video Sharing site Dailymotion gets 1bn page views

StrategyWire view and links - Video Sharing site Dailymotion gets 1bn page views

French video sharing site Dailymotion has been listed in the top 100 most visited pages of Alexa's web analytics platform. Last July, the portal was positioned in the top million most visited websites and has this year reached a peak of 1bn page views in February, positioning itself in 80th position. Dailymotion is a video sharing site that competes with YouTube, enabling users to share personal videos with family, friends and other Dailymotion users with video taken with devices such as  video cameras mobile phones or web cams. The site incorporates web 2.0 features including video widgets for embedding in blogs, podcasting, RSS feeds and multilingual social tagging.  All of Dailymotions features are multilingual in formant with Dailymotion offering 11 languages since launch. A Recent feature addition to the video sharing site include a feature called MotionMaker, enabling content creators such as musicians, film producers and other artists to post local language specific content. Producers of original high quality content are awarded with advertising revenue cuts.

Similarly to other video sharing sits such as YouTube, Dailymotion has been negotiating deals with media companies and content owners. The latest 9 Mar deal, between Dailymtion and Universal Music, enables the broadcast of Universal Music's music videos on the portal in exchange for advertising revenue. Earlier this year a similar deal was signed with Warner Music. The recent growth of the video sharing site has instigated local media companies to move closer to Dailymotion in an attempt to diversify their broadcasting portfolio and move to an increasingly interactive approach. As such local broadcasters, including France 24, have been using the portal to enable viewers to upload videos of themselves, which are then broadcasted on TV shows, allowing the public to ask questions or raise issues concerning the theme of the show.

This increase in popularity has prompted analysts to believe that many VC firms are now missing out on what could potentially turn into a serious YouTube contender. It appears as though Partech International and Atlas Venture's USD9.56m funding has served well, considering that Dailymotion offers numerous web pages (French and Italian with a plan to open websites for the US and Germany) and its popularity is extending overseas reaching Japan. Partech International general partner Philippe Collombel explained that such growth has turned Dailymotion into an acquisition target "[but] with such strong growth, we are not in any hurry to sell".

AdMob raises $15m from Sequoia and Accel

AdMob raises $15m from Sequoia and Accel

AdMob says it raised USD15m in Series B investments with money coming from Accel Partners and previous investor Sequoia Capital (Sequoia had already invested an estimated USD4m). The money will be used to develop new advertising solutions and improve the existing platform to make it easier for current advertisers to manage their promotion.

The company claims to have served over 1.6bn advertisements across 160 companies in less than a year, and suggests that they have delivered more than rivals such as Enpocket and Rhythm NewMedia. Having passed the 1bn advert level in January, AdMob claims to have accelerated and delivered 600m in the February and March to date. Its nearest competitor Third Screen Media (which is speculatively rumoured to be in acquisition talks with AOL for $80m or so) claims to serve an estimated 350m advertisements every month.

News Corp and NBCU confirm launch of "YouTube killer"

StrategyWire view and 18+ links to online opinion

News Corp and NBCU have confirmed they are launching an online video site to rival YouTube, following months of speculation and rumours that big traditional media players were collaborating on such a venture. Each company will invest "significant" funds to market and promote the venture, but financial details were not disclosed. 

MySpace, Yahoo!, MSN and AOL are signed up as distribution partners that will launch separate, branded portals.  Content will include full-length, ad-supported TV shows and movies with personalised playlists and mashups.  Current releases and popular series such as 'Borat', 'Little Miss Sunshine', 'Heroes' and '24' will be available and the site aims to attract and license content from other high-profile media owners such as Time Warner, Sony and CBS. The sites will incorporate advertising, alongside more than 1,000 hours of free content. Initial advertisers are claimed to include Cadbury Schweppes, Intel and General Motors. Sites affiliated with the founders, including iVillage and IGN, will also have the opportunity to become distribution partners once the site is established.

News Corp CEO and Rupert Murdoch's right hand man, Peter Chernin, will sit on the new company's board alongside NBCU head Jeff Zucker. Chernin argues that, "this is a game-changer for internet video," but external onlookers are not so sure. Techcrunch believes that announcements to date about the new venture "doesn't suggest this thing will be a winner" and appears to agree with Google's internal nickname for the as-yet unnamed company, "Clown Co". Many critics believe that this new venture will do little to detract from the popularity of YouTube. Analysts suggest that the appeal of the user generated site is focused at a different target audience from News Corp's venture.

This alliance has been months in the making, born from frustration that YouTube has been stealing revenues and audiences. The reaction to YouTube since its market entry is diverse. Some companies have actively sought to undermine it, while others have aligned themselves with the video-sharing site. Now, with News Corp and NBCU entering into the arena, users and companies will have a choice. All the companies involved with the new announcement have been very keen to stress its belief in copyright, a nod to the troubles dogging YouTube, which is being sued by Viacom for USD1bn over such issues. The strategic partnership comes at a time when the internet is being used for video more than ever. In Jan 123m unique users accessed video content.

The only missing player in this new occurrence is Viacom. The company was in talks with News Corp and NBCU until last Dec when it decided conflicts of interest would be an issue. It will be interesting to see how Viacom reacts to the new venture.

Couple of views out in the blog and news ether:

NBCU and News Corp Detail New Online Video Site (TVOvernet)

NBC, News Corp Pull Together To Challenge YouTube (LA Times)

Web 2.0 startups get USD844m

StrategyWire view - Web 2.0 startups get USD844m

A total of USD844m was invested by VCs in Web 2.0 startups, according to a study by Ernst & Young and Dow Jones VentureOne.  This includes the USD455.5m invested in 79 web 2.0 startups during the first nine months of the year, which is more than double the amount invested in the whole of 2005. Sequoia is the most active investor, according to the report, with 17 investments in this sector after Benchmark Capital (16) and DFJ (15). 

The study also claims that 83% of the USD844m went on 126 US-based companies, six times more than in European Web 2.0 startups, with both Facebook and Zillow raising USD25m.  The principle reason attributed to the rising investment in this sector is due to the success and countless replications of social networking sites like MySpace and YouTube, as well as the high profiles buyouts of these companies by News Corp and Google.  Sequoia made a USD488.5m profit from its sale of YouTube to Google. 

However, this trend is not expected to last, as investor Todd Dagres says that, "too many companies are being funded..the inflation is similar to ..the [dotcom] bubble."  In addition, despite the rise in VC investments in this area, the valuations for Web 2.0 startups dropped to USD6m, approximately USD1m less than in 2005, although this may be because the initial startup capital is less and so results in a lower net worth at the time of the valuation.

Paidcontent commentary

Venture beat commentary with stats

News Corp and NBCU still set to launch YouTube rival - Rumour

Rumours have resurfaced online regarding a potential News Corp and NBC Universal joint venture to create a rival to YouTube. One report on paidcontent.org suggests that "potential equity partners are talking to potential distribution partners including Yahoo! and MSN." The LA Times suggests that News Corp and NBC could announce a new online video site, which will launch this summer, this week. The difference between these current rumours and the ones that circulated in the past is that the involvement of other major media groups, such as Viacom and CBS, are not mentioned. This may suggest that News Corp and NBC are looking to create a rival without the involvement of other direct competitors. Viacom is believed to have withdrawn from such discussions last Dec. Separate agendas of would-be partners may be a factor.  Viacom's MTV, for example, competes directly with News Corp's MySpace. Sony, however, is mentioned as being involved in the latest discussions.

The reactions that YouTube has caused since it entered the market are diverse. Some companies have actively sought to undermine it, while others are aligning themselves with the video-sharing site. While Viacom is suing YouTube for USD1bn over copyright issues, in recent months YouTube has partnered with CBS, Vodafone and the BBC.

"The media companies don't want to be forced to only work with one distribution entity, in Google," the LA Times quotes UBS Warburg media analyst Aryeh Bourkoff as saying. He doesn't believe it's "too late" for them to enter this space. Deciding whether there is more sense and more sustainable revenues through partnering or competing with YouTube is a key decision facing all content owners and traditional media players.

YouTube is in a strong position as it is currently the default location for users to go to upload their video content, while following its acquisition by Google, YouTube has a very strong infrastructure basis that is not easy to replicate. On the other hand copyright issues continue to dog YouTube and the Viacom court case could prove a watershed. That is if it doesn't merely prove a high-pressure negotiating tactic designed to result in better royalties for Viacom.

Rafat adds his comments at paidcontent - Its Back: Talk Of FOX-NBC Video JV Heats Up Again

StrategyWire view - News Corp and NBCU still set to launch YouTube rival - Rumour