Spotify Founder Says the Future of Music Industry is in Low-Margin Model

  • Spotify founder Daniel Ek compares the music streaming service, now valued at $3 billion, to Amazon, saying he’s willing to bet on low-margins to build the business in the long term.
  • The music industry has been resistant to such services, but Ek suggests the business model makes more sense as consumers’ habits have changed.
  • “Songs in the [Spotify’s] catalog are played again and again, with no diminution in popularity,” in contrast to the quick decline of sales after CD releases, Quartz writes. “The reason is simple: people are building playlists. It’s as if an artist were paid every time one of their fans dropped a needle on their record.”
  • “They’re saying, oh, they’re just paying a fraction of a cent every time someone plays a song,” says Ek. “And then you compare it versus the download revenue. Well, I can tell you it will take you 200 song listens before you make the same amount of money [as a download]. But because the consumption behavior is entirely different, and the revenue then increases in perpetuity, it’s not even a question of if this model is better, it’s just when in the life cycle it’s better.”
  • Ek wants to rebuild the industry that has been torn down by piracy and consumers’ shifts in behavior.
  • “As the world moves from owning content to getting access to it on demand, Ek’s experience is likely to generalize across all kinds of content,” including movies, notes the article. “It’s a fundamental transformation of how artists and their industries will make money.”
  • As a point of differentiation from other services, Spotify is focused on music discovery. But it relies on third-parties to build such apps on top of Spotify’s library.
  • “We distinctly don’t think we’ll figure out every single use case around music,” says Ek. “But we do want to be the platform for music… If there’s music somewhere, we should power that.”

Online Payments Becoming Mainstream, Yet Consumers Remain Hesitant

  • As smartphone and tablet adoption grows, so do online payments, but they still remain a small portion of all transactions — mostly because of fear.
  • A 2012 survey from online authentication firm Entersekt found that only 32 percent of men are inclined to carry out online transactions on their mobile devices. For women, that number was even less, just 25 percent.
  • “In today’s world, consumers are not only aware that fraud exists, but many have either experienced it personally, or know someone that has,” writes Entersekt’s CEO Schalk Nolte. “This criminality impacts all of us through increased insurance, increased prices, and increased hassle. However, what I think is interesting and actually quite comforting, is that people are happy to be inconvenienced if it means they’re better protected.”
  • The development of new encryption technologies such as SSL (Secure Socket Layer) will help to increase security without delaying transactions.
  • According to a report from Ecommerce Europe, the expansion of smartphones will make 12.5 of all e-commerce transactions mobile by the end of 2013.
  • “It needs to be stressed, however, that such prospects will not materialize unless online payment services providers keep constant track of market trends, consumer demands and competition in this challenging market environment,” Ulric Jerome, with Ecommerce Europe, said in the report.
  • While both increased security and mobile devices will play a big part in making online payments mainstream, social influence will also have a big role. “Consumers are more likely to adopt new methods of currency exchange when they feel that everyone else is doing it too,” reports ReadWrite.
  • “Bottom line: The more people hear and see online payment systems in action, the more they will want to try them for themselves. In the meantime, only the bold are willing to go first.”

Europe vs. Facebook: Law Student Raising Funds for Privacy Campaign

  • In what started as a class assignment, Austrian law student Max Schrems from the University of Vienna is fighting Facebook for “right of access,” a European privacy principle that allows users to request all the data an EU entity has about them.
  • Schrems formed an advocacy group called “Europe vs. Facebook,” encouraging Facebook users worldwide to request copies of their data. He has sent complaints to the Irish Office of the Data Protection Commissioner (ODPC) to force Facebook to comply with EU law.
  • “Just this month,” Ars Technica writes, “Facebook changed the way it presents privacy information to new users, largely at the suggestion of the ODPC. Back in September, Facebook said it would disable facial recognition for European users, also under pressure from Irish authorities.”
  • “[Schrems] is now going to have to sue not only Facebook, but also the ODPC to say that it has imposed too low a threshold. That’s a very, very hard standard to meet,” says Eoin O’Dell, an Irish law professor. “…it’s a very important social strategy [in terms of public awareness], but on the legal side I think it’s going to be very hard to win now that there has been significant engagement [from Facebook] with the ODPC and vice versa.”
  • Schrems is trying to raise $384,000 to fund the multi-year legal battle “that might significantly redefine how Facebook controls the personal data on over one billion people worldwide,” suggests the article.
  • “We do have privacy laws which, by the letter of the law, are rather strict. In the end we’re not really enforcing it right now — that’s the politically interesting thing about the Facebook case,” notes Schrems. “To me it’s an experiment; you have a win-win outcome. On the one hand, Facebook gets off the hook and that would be great, because then we have to change the law. Or [on the other hand] it’s a landmark case, saying actually there is enforcement.”

Will Social TV Companies Find a Way to Disrupt Hollywood Dominance?

  • At the Monaco Media Forum last week, one digital media banker said social TV companies will find it hard to prove their worth. “When social TV companies say, ‘We can enhance engagement by 700 percent, the advertisers say, ‘So? We’re happy with the engagement we have.’ As far as the TV infrastructure goes, it ain’t broke,” suggests Terence Kawaja.
  • Kawaja is a former GCA Savian media M&A advisor who founded Luma Capital. He acknowledges the second-screen trend, but doesn’t see it as a strong business opportunity when considering the control TV networks have on advertising.
  • “That’s all well and good — but it’s on the margin,” he says of second-screen businesses. “The thing they teach you in startup school is, solve an existing problem. There’s no problem in TV — at least, not for the people who are funding it.”
  • Naturally, online companies think differently. “I love television but I don’t think the current state of television advertising leverages all the potential TV has,” says Benjamin Faes, Google’s media and platform director for northern and central Europe.
  • Google and other companies are working to make TV ads personalized like many Web ads are. These efforts could prove fruitless if they directly conflict with the current Hollywood dominance.
  • “A lot of digital guys say ‘TV is dead, video’s going to take over,'” Kawaja says. “Not so fast — the producers have a cabal that’s not going to be disrupted any time soon. This is really a lop-sided playing field.”
  • “Television ad spend is $70 billion in the U.S. Compare that to online video monetization that’s roughly $2.5 billion,” he continues. “The $70 billion is growing. This cabal is going to make it very difficult to disintermediate.”
  • But according to digital companies, the TV industry could soon lose it all. “Even if, today, ad spend is growing on TV, if the TV industry does not act soon, the total amount of value will decrease,” counters Stephanie L’Hospital of France Telecom’s Orange.

Study Shows Decline in Ratings for DVR Viewing in Sync with Live TV

  • Recent Nielsen reports saw sharp declines in “live” viewing of the top broadcast networks, and television executives were quick to point the finger at digital video recorders. However, a new study shows that DVR viewing has fallen in sync with live viewing.
  • According to Nielsen, Fox had 25 percent fewer viewers for both live viewing and delayed DVR viewing. Similarly, ABC lost 11 percent of its live viewers and 7 percent of its audience watching programming a week later. CBS had a 12 percent decline in live viewership and 10 percent in viewership measured up to a week after the show aired. NBC, however, saw a rise in both categories — 10 percent for live and 14 percent for delayed viewing.
  • “The data are likely to underscore concerns about traditional television viewing, suggesting that people are either watching broadcast television shows through on-demand services, or are turning to alternatives such as online video,” the Wall Street Journal suggests.
  • The article notes that the audience watching up to a week after the broadcast tends to be 30 percent larger on average than the audience of the initial airing.
  • Networks are calling for advertisers to take into account viewing that occurs up to a week after when considering ad buys. Currently, only viewing delayed three days is considered, but even if the window is expanded, the networks are unlikely to see any increased ad revenue as DVR viewers typically skip ads.
  • Some executives suggest a lack of buzzworthy shows or the presidential election could have effected declines. But analyst Todd Juenger is unsure.
  • “One possibility is that fewer individuals in any given home are watching TV. ‘You could theorize that now the high school kid isn’t watching the TV anymore,’ Mr. Juenger said, adding that another culprit could be video on demand, which isn’t captured in time-delayed ratings.”

Judge Allows Apple and Samsung to Include Products in Patent Lawsuit

  • U.S. Magistrate Judge Paul Grewal is allowing Samsung to add the iPhone 5 to the list of Apple products infringing its patents. Meanwhile, he also approved Apple’s move to include the Samsung Galaxy Note, Galaxy S III and the Jelly Bean operating system in its patent violation claims.
  • In August, Samsung was found guilty of violating Apple’s patents and forced to pay $1.05 billion in damages. Earlier in February, Apple filed a second lawsuit against Samsung, “alleging that various Samsung smartphone and tablet products including the Galaxy Nexus infringed eight of its patents,” Reuters reports.
  • In response, Samsung filed a cross-complaint that Apple’s iPhone and iPad infringed on eight of its patents.
  • “U.S. District Judge Lucy Koh issued a preliminary injunction against pretrial sales of the Nexus in June. But the U.S. Court of Appeals for the Federal Circuit overturned the sales ban on October 11,” explains the article.
  • Apple’s addition of the Jelly Bean operating system is the first direct action against Google in its patent lawsuits with Samsung.
  • Even though Apple did not oppose adding the iPhone5, Judge Grewal warned the Silicon Valley tech giant to “think twice before opposing similar amendments reflecting other newly released products — e.g. the iPad 4 and iPad mini — that Samsung may propose in the near future.”

The Impact of Android: Examining Declining Apple Mobile Market Share

  • In terms of profit share in the mobile market, Apple is undoubtedly the winner. But as Android gains in market share, Apple could face a downfall if it doesn’t forfeit some of its profit margin to compete with cheaper — yet quality — devices.
  • Mobile is largely a “platform market,” meaning third-party companies build products and services on OS platforms, Business Insider explains.
  • “Building products and services for multiple platforms is expensive, so platform markets tend to standardize around a single leading platform,” the article states. “As they do so, the power and value of the leading platform increases, and the value of the smaller platforms collapses.”
  • “In a platform market, having dominant market share is critical to maintaining long-term profit share,” the article continues, rebutting the idea that Apple is safe by just dominating profits.
  • Both Android and Apple have grown market shares at the expense of other platforms. But Android has grown substantially more by appealing to customers with smaller budgets.
  • The article debunks some arguments against Android, such as: it is hugely fragmented; Apple is in the “premium” segment of the market and doesn’t care about the rest; Apple’s content, apps, and services ecosystem is better than Android’s; and, developers can’t make money on Android.
  • “As the market matures, Apple will not be able to protect both its market share and its profit margin — it will be forced to choose between one or the other. And given the importance of market share in a platform market, the smart strategic decision is almost certainly to protect market share,” BI concludes. “Unfortunately, protecting market share will almost certainly mean that Apple’s extraordinary profit margin will drop in the coming years, probably significantly.”

Latest Beta Release of Steam Features TV Interface: Game Console Next?

  • Valve Software’s digital distribution platform Steam, which has gained 50 million PC users, could threaten console ecosystems as it expands into the living room and potentially creates its own operating system.
  • “With Big Picture Mode, a new feature in the latest Steam beta release, Valve’s adding an interface designed specifically for your TV,” reports The Verge. “The company is also actually building game controllers in its labs, and has already produced three different prototypes.”
  • Moreover, Valve is developing virtual reality headsets — another way the company can draw in developers.
  • “Earlier this month, Valve opened up a beta of Steam for Linux to 1,000 lucky users. Valve didn’t do it quite alone: the company enlisted the support of Nvidia to write Linux drivers, and is working with Intel and AMD as well,” the article explains.
  • The move suggests the company could be looking to build its own OS. “Valve could take the same approach that Google took with Android by licensing the operating system to hardware manufacturers, and create a new platform in the process.”
  • “Meanwhile, the company’s also experimenting with a program called Steam Greenlight that has the community vote to publish indie games on Steam, possibly attracting innovative, desirable diamonds in the rough that would otherwise appear first on PlayStation Network or Xbox Live Arcade,” the article states.
  • “If Valve can own the software and hardware stack with Steam OS and the Steam Box, it will be able to offer a single platform with better specs, a dedicated fanbase, intriguing new hardware, games that just work, and proven delivery mechanisms that get gamers to buy and buy often. If Valve pulls it off, it could be enough to win the living room from Sony, Nintendo, and Microsoft.”

Nintendo Wii U Review: The Hardware, Software, Games and Features

  • Engadget reviews the Wii U, Nintendo’s new $300-350 ecosystem that looks to combine stylus, microphone, motion-recognition, touchscreen and physical controls for one involved gaming and media experience.
  • The console itself “looks almost exactly like the original Wii,” albeit a little longer, rounder, and outfitted with an HDMI port and more powerful internal processing.
  • “Like the GamePad it supports, the Wii U console is glossy, fingerprint-loving plastic,” notes the review. “The dust and cat hair in our test apartment love the exterior of the Wii U. We do not.”
  • The GamePad weighs 1.1 pounds, but is comfortable to hold. On average, the battery life lasts 3.5 hours and takes 2.5 hours to recharge. The device has NFC connectivity and can be used as a universal remote to do basic commands for “most” HDTVs.
  • “Sadly, overall, the GamePad controller gives off a relatively low-grade impression; it looks and feels like a toy,” suggests the review, which provides additional details regarding software and available games.
  • “Nintendo promised consumers a modern HD gaming console, and the Wii U — what’s there of it thus far — delivers on that promise. Games look gorgeous (HD Mario!), the risky controller [separate from the GamePad] is another successful control innovation and there’s a ton of promise on the horizon. What’s missing, sadly, is a huge part of the puzzle — so huge, in fact, that it’s impossible for us to pass judgment on the whole package just yet.”
  • “Without Nintendo Network, Miiverse, Nintendo TVii, or any streaming/on-demand video content — not to mention promised backwards compatibility — the Wii U doesn’t compete at all with even last-gen consoles (Xbox 360 and PlayStation 3 just became last-gen, in case that isn’t clear),” explains the post. “But Nintendo launched a patch just four hours ahead of launch containing at least some of that functionality, so we’re reserving judgment until we’ve spent time with its post-update features.”

China Challenge: Can Apple iPhone Catch Up with Android Dominance?

  • As Chinese consumers make the move to smartphones, the billion-plus mobile phone subscribers represent a potential expansion opportunity for manufacturers, and a challenge for Apple.
  • “Based on recent data reported by Chinese research firm, Analysis International, which has tracked smartphone sales for the past several quarters, Apple may have a challenging time replicating the market share success its iPhone has seen in other countries: In the third quarter of 2012, Android accounted for 90.1 percent of all smartphone sales in China,” GigaOM reports.
  • The post includes a graph from Analysis International that shows Google’s Android consistent rise in adoption from Q2 2011 to Q3 2012. Nokia’s Symbian platform controlled almost a third of the market in 2011, but quickly dropped off to less than 5 percent by the last quarter.
  • “Analysis International also tracked the average selling price of handsets by platform and that helps explain the situation,” notes the post. “While costs for all smartphones have been decreasing in China, the average Android handset costs about one-third that of an iPhone.”
  • As consumers switch from feature phones, low- to mid-end Android models are still large improvements, even if they don’t offer all the bells and whistles of Apple’s phones.
  • “I suspect Apple will still sell more than enough iPhones in China to add billions of profit for the company,” the post states. “But any ideas of iOS taking a large portion of the market in China — or India, for that matter — have to be tempered due to the fast growth of Android.”

Activision Sets One-Day Sales Record: Call of Duty Tops $500 Million

  • Activision set a new sales record for its latest first-person shooter when “Call of Duty: Black Ops II” hit $500 million in sales on its opening day.
  • “That easily outguns first-day sales of ‘Halo 4,’ which Microsoft said on Monday totaled $220 million,” AllThingsD notes. “Activision’s war-themed title also easily beats last year’s blockbuster release, ‘Call of Duty: Modern Warfare 3,’ which achieved $400 million in sales within 24 hours, and about $1 billion after 16 days.”
  • Notably, Microsoft’s “Halo 4” sells exclusively for Xbox while “Call of Duty” is available on Xbox, PlayStation 3 and Nintendo’s upcoming Wii U. Also, the latest “Call of Duty” only got a score of 84 on the review service Metacritc compared to a 91 for “Halo 4.”
  • Activision Blizzard’s CEO Bobby Kotick says the new release was impressive even by Hollywood’s standards.
  • “With first day sales of over half a billion dollars worldwide, we believe ‘Call of Duty’ is the biggest entertainment launch of the year for the fourth year in a row,” Kotick says. “Life-to-date sales for the ‘Call of Duty’ franchise have exceeded worldwide theatrical box office receipts for ‘Harry Potter’ and ‘Star Wars,’ the two most successful movie franchises of all time.”

Dish and Google Discuss Possibility of Launching New Wireless Network

  • Since 2008, Dish Network has been buying up wireless spectrum and in the past year it has repeatedly said it is looking for a partner to build a wireless network.
  • The company recently met with Google to explore the possibility of a collaboration, but according to a person familiar with the matter, “the talks between Dish and Google aren’t advanced and could amount to nothing,” the Wall Street Journal reports.
  • “Most of the spectrum Dish has is designated for satellite use,” explains the article. “Dish has asked the Federal Communications Commission to allow it to use the spectrum for a solely ground-based cellphone network. The FCC denied Dish a needed waiver last March, opting for a yearlong deliberation process that has yet to reach completion.”
  • The fact that Dish is actively looking for partners while awaiting approval shows the company’s dedication to building out a wireless network as opposed to just selling the spectrum, which is worth several billion dollars.
  • Dish chairman Charlie Ergen says the company’s potential partners include companies, like Google, that would like to be in the business but currently don’t have any experience. He did note, however, that it would be easier for Dish to team up with a company that already has infrastructure.
  • “While Google doesn’t have expertise in wireless infrastructure and doesn’t control spectrum, the company has cash — more than $45 billion at the end of September — which could be used to help build a new network,” the article states.
  • “By gaining some control of wireless spectrum, Google could push to increase Web traffic speeds on mobile devices,” so people spend more time with Google’s services, increasing Google’s revenue. “Google also could ensure the availability of new services such as Google Wallet, a mobile payments system that currently is blocked by AT&T and Verizon.”

Cord Cutters May Not Be a Threat, But We Should Watch Cord Nevers

  • According to Time Warner CEO Jeff Bewkes, cord-cutting is exaggerated, and very few people other than low income Americans are actually giving up their cable subscriptions for digital services.
  • Despite their growing popularity, Netflix, Amazon and other streaming services are not threatening the TV industry, Bewkes says. They “are largely distribution platforms that don’t own the quality content audiences want to watch,” notes paidContent. “[Bewkes] added that such platforms compete with each other and not with traditional TV companies.”
  • “Despite his dismissal of cord-cutting, Bewkes did acknowledge the emergence of ‘cord nevers,’ which are younger people who never acquire cable in the first place,” the article continues. “For them, he said it’s not a question of money — ‘they can afford three Starbucks a day’ — but rather different habits and expectations. Bewkes pointed out that the ‘cord nevers’ are not receiving the best content (it will be interesting to see if this argument one day sways them into signing up).”
  • Bewkes touched on advertising, suggesting ad-only models are not viable for most content, and companies need to create ads that people want to watch.
  • The cable industry also has some problems that need to be addressed, such as the rising cost of sports. “Half of the population that doesn’t want sports is subsidizing the other half that does,” Bewkes says, noting that consumers are forced to buy expensive sports channels they might not want as a part of their cable package.
  • “All of this suggests that the cable industry will finally have to give in and offer consumers a full-blown a la carte model — but don’t hold your breath,” the article states. “The simple reality is these rich and powerful companies are going to ensure that a cable subscription remains a toll to get access to things like HBO and the NFL on the iPad.”

Netflix Claims Amazon Losing Hundreds of Millions on Streaming Video

  • Amazon is losing between $500 million and $1 billion annually on its streaming service, according to Netflix CEO Reed Hastings.
  • Netflix and Amazon often compete for content deals, and Hastings’ estimates are based on the value of the content agreements that Amazon has won.
  • Netflix recently reported that it will spend $2.1 billion on content rights in the coming year. It charges its customers $8 a month for its streaming service.
  • “He says he thinks Amazon’s costs are split evenly between its U.S. operations and in Europe, where it operates the Lovefilm streaming service,” AllThingsD reports.
  • “In the U.S., Amazon rents and sells digital movies and TV shows on a one-off basis via its Amazon Instant Video service,” the article continues. “It also offers a large catalog of titles for free to customers who pay $79 a year for its Prime shipping service, and recently began testing an option that lets customers pay $8 a month for Prime; Hastings’ estimate is based on acquisition costs for the Prime/video bundle.”
  • According to Sandvine, Netflix accounts for 33 percent of Internet traffic, while Amazon sits at just 1.8 percent. Even so, Hastings says, “Amazon is the best competitor we’ve ever faced.”

Google Transparency Report Shows Government Requests Increasing

  • Google began releasing a transparency report semiannually in 2010, hoping to “shine a light on how government actions could affect our users,” the company’s public policy blog explains. The latest report, covering January through June 2012, shows a growing number of government requests for user data and content removal.
  • “This is the sixth time we’ve released this data, and one trend has become clear: Government surveillance is on the rise,” the post says. “Government demands for user data have increased steadily since we first launched the Transparency Report. In the first half of 2012, there were 20,938 inquiries from government entities around the world. Those requests were for information about 34,614 accounts.”
  • A graph accompanies the post, showing a gradual increase in government requests for data with a slight uptick in the last year.
  • “The number of government requests to remove content from our services was largely flat from 2009 to 2011,” the post continues. “But it’s spiked in this reporting period. In the first half of 2012, there were 1,791 requests from government officials around the world to remove 17,746 pieces of content.”
  • By comparison, the number for the July-December 2011 period was only 1,048.
  • “The information we disclose is only an isolated sliver showing how governments interact with the Internet, since for the most part we don’t know what requests are made of other technology or telecommunications companies,” the post states. “But we’re heartened that in the past year, more companies like Dropbox, LinkedIn, and Twitter have begun to share their statistics too. Our hope is that over time, more data will bolster public debate about how we can best keep the Internet free and open.”

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