The Future of Content Delivery

Key opportunities and challenges in delivering digital media and entertainment

Reference Code: BI00052-009 Publication Date: July 2011

Deepika Chaubey
Deepika Chaubey has significant consulting and best practices research experience. She has led several strategic research and consulting assignments for global clients, and has worked on a range of projects related to competitive profiling, market/industry attractiveness, market sizing, and market entry strategy. Her work in the technology domain centers on tracking emerging technologies and markets.

Disclaimer
Copyright 2011 Business Insights Ltd This report is published by Business Insights (the Publisher). This report contains information from reputable sources and although reasonable efforts have been made to publish accurate information, you assume sole responsibility for the selection, suitability and use of this report and acknowledge that the Publisher makes no warranties (either express or implied) as to, nor accepts liability for, the accuracy or fitness for a particular purpose of the information or advice contained herein. The Publisher wishes to make it clear that any views or opinions expressed in this report by individual authors or contributors are their personal views and opinions and do not necessarily reflect the views/opinions of the Publisher.

Table of Contents
Deepika Chaubey
Disclaimer

2
2

Executive summary
Introduction and market context The role of Digital Rights Management in content delivery Video Content Delivery Music Content Delivery Video Gaming Delivery eBooks Delivery The Future of Content Delivery Competitive landscape

15
15 15 16 17 18 19 20 20

Chapter 1 Introduction and market context

Summary Report scope Who is this report for? Background Content Delivery Networks The global content delivery market Role and importance of content delivery
Video Music Gaming eBooks

22
22 23 23 24 26 27
27 27 28 28

Chapter 2 The role of Digital Rights Management in content delivery 29

Summary Introduction Background Increasing role of DRM in media and entertainment
Video Music Gaming eBooks

29 30 30 31
31 31 32 33

Chapter 3 Video Content Delivery

Summary Introduction Background Online video advertisement spend forecast, 200914 Growth drivers
Demand for high quality video propelling content delivery platform investments Video content demand on mobile devices presenting new revenue opportunities Service bundles driving the demand of multi-play service platforms User generated content increases video sharing website traffic

34
34 35 35 36 37
37 37 38 38

Key trends
Increased investments in platforms supporting multiple end user devices Video content monetization through subscriptions and advertisements Growing market for Video on Demand Increased personalization in content display based on users interest areas

39
39 39 40 40

Trends in video content delivery by region

4

41

US Japan UK France South Korea India China Brazil

41 42 43 44 44 46 46 48

Challenges in video content delivery

Delivering content on multiple platforms Scalable content delivery systems to accommodate growing internet content Delivering good quality content

50
50 51 51

Content delivery strategies followed by key video companies

ABC delivers interactive television services on iPad Netflix offers subscription based on-demand video streaming services Hulu offers both free advertisement supported & subscription based content Comcast launches one of the first TV Everywhere service in the US

51
51 53 55 56

The future of video content delivery

Shift to 3D format Internet-only video providers Transition to the cloud Packaged applications delivered over tablets

57
57 57 57 58

Chapter 4 Music Content Delivery

Summary Introduction Background
5

59
59 60 60

Global digital music market forecasts, 200914 Growth drivers

Removal of DRM leading to increased download volumes Increased music consumption owing to mobile capability Music access service bundles drives investments in content delivery platforms

61 62
62 62 63

Key trends
Increased adoption of subscription based music content download Music made available on social media Growing market for unlimited ad-supported free music streams Musicians distribute directly to end users

64
64 64 65 65

Trends in digital music delivery by region

US Japan UK France South Korea India China Brazil

66
66 66 70 72 74 74 75 75

Challenges in digital music delivery

Piracy Digital music pricing

76
76 76

Content delivery strategies of key digital music websites

iTunes transitions from PC software based to a cloud based service Amazon enters the subscription based streaming market by acquiring Amie Street Spotify Pandora 6

77
77 77 78 79

The future of digital music delivery

Cloud based music services Rise in social music sharing websites Streaming services offered by e-commerce websites

79
79 79 80

Chapter 5 Video Gaming delivery

Summary Introduction Background Global video gaming forecasts, 200914 Growth drivers
Seamless gaming experience on mobile The rise of online gaming Mobile-to-console integration

81
81 82 82 83 86
86 86 86

Key Trends
Social gaming User generated gaming content Motion sensor gaming

87
87 89 90

Trends in video gaming delivery by region

US Japan UK France South Korea India China Brazil 7

91
91 92 92 94 95 95 96 97

Challenges in gaming delivery

Piracy Long development cycle impacts profitability

98
98 98

Content delivery strategies followed by key gaming companies

Console based gaming Sony PS3 Zynga exemplifies the rise of social gaming

99
99 100

The future of gaming delivery

Cloud based gaming streams Massive Multiplayer Online Role Playing Games (MMORPG)

101
101 101

Chapter 6 eBooks delivery

Summary Introduction Background Global eBooks market forecasts, 200914 Drivers
Aggressive pricing, integrated store experience, and more titles Innovation in eReaders expanding scope of content delivery

102
102 103 103 104 105
105 105

Key Trends
Publishers getting involved in content delivery Multiple application strategy working in the US but Europe needs to catch up Europe is still in nascent stage though there are early signs of digital books adoption

106
106 106 107

Trends in eBook delivery by region

US Japan UK France 8

107
107 109 110 111

South Korea India China Brazil

112 112 113 114

Challenges in eBook delivery

Formulating country specific content delivery strategy Unfavorable tax policies is significantly impacting growth in Europe Managing sales to create a sustainable business model around content delivery Developing simple yet effective DRM systems Increased sophistication of eReaders at lower prices

115
115 115 116 116 117

Content delivery strategies followed by publishers

Amazon focusing on developing integrated shopping and delivery system Google eBooks focusing on the cloud

117
117 118

eBooks in the future

Localizing content delivery Developing a cost effective content delivery strategy Existing online bookstores will continue to dominate Increased focus on portability across multiple media, formats, and platforms eReaders to retain customer segment despite rising competition from other devices

119
119 119 119 120 120

Chapter 7 The future of content delivery

Summary Introduction Video Music Video gaming eBooks
9

121
121 121 122 123 124 125

Chapter 8 Competitive landscape

Summary Introduction Content Delivery Network (CDN) providers
Akamai Technologies Overview Product portfolio Strategy Key developments Key clients Financial overview Limelight Networks Overview Product portfolio Strategy Key developments Key clients Financial overview Level 3 Communications Overview Product portfolio Strategy Key developments Key clients Financial Overview EdgeCast Networks, Inc. Overview Product portfolio Strategy Key developments Key clients Internap Network Services Overview 10

127
127 127 128
128 128 128 129 130 131 131 133 133 133 134 135 135 136 138 138 138 140 140 141 141 142 142 142 142 143 144 144 144

Product portfolio Strategy Key developments Key clients Financial overview Highwinds Network Group Overview Product portfolio Strategy Key developments Financial overview CDNetworks Overview Product portfolio Strategy Key developments Key clients

144 145 145 146 146 148 148 148 149 149 150 150 150 150 151 151 151

DRM technology providers

Adobe InterTrust Rights System Rovi (Macrovision) Microsoft Contentguard IBM

152
152 153 153 154 155

Appendix
Methodology
Primary research Secondary research

156
156
156 156

Glossary/Abbreviations Bibliography/References

156 157

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Table of figures
Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Growth of countries with 3G commercial services, 2002-09 CDN revenues by geography (%), 2010 Global online video advertisement spend ($m), 200914 Frequency of watching Internet video by country, 2009 Mobile content revenues in China by type ($m), 2010 Internet users (m) and total online hours per visitor, October 2010 ABC on iPad Example of ABCs interactive My Generation experience Netflix share price movement, March 2010 March 2011 24 26 36 45 47 49 52 53 54 55 56 61 67 68 71 72 80 83 85 88 91 93 94 104 108 109 113 122 123 124 125 128 132 134

Figure 10: Netflix button on remote controls Figure 11: Subscription based service offered by Hulu Plus Figure 12: Global digital music market revenues by segment ($m), 200914 Figure 13: Japanese digital music revenues by segment ($m), 2005-09 Figure 14: Japanese digital music revenue share by segment, 2009 Figure 15: Digital formats share of music sales in the UK (%), 2004 Q310 Figure 16: Breakdown of digital revenues in the UK, 12 months ended Sept. 2010 Figure 17: Snapshot of Ping social network for music Figure 18: Global video gaming revenues ($bn), 200914 Figure 19: Global video gaming software revenues by segment ($bn), 2009-14 Figure 20: Global number of online social gamers by age group (% population), 2010 Figure 21: Gaming spend in the US, 2009 vs. 2010 Figure 22: Gaming spend in the UK, 2009 vs. 2010 Figure 23: Total money spent per gaming platform in France (m), 2009-10 Figure 24: Global eBooks revenues ($m), 2009-14 Figure 25: US eBooks revenues ($m), 2009-14 Figure 26: Japanese eBooks revenues ($m), 2009-14 Figure 27: Chinese eBook shipments (000 units), 2009-14 Figure 28: Evolution of video delivery Figure 29: Evolution of music delivery Figure 30: Evolution of video game delivery Figure 31: Evolution of eBook delivery Figure 32: Akamai Technologies product portfolio Figure 33: Akamai Technologies key financials ($m), 2006-10 Figure 34: VAS as a % of revenues for Limelight Networks, Q109-Q410 12

Figure 35: Limelight Networks key financials ($m), 2006-10 Figure 36: Level 3 Communications product portfolio Figure 37: Internap Network Services key financials ($m), 2006-10

137 139 147

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Table of tables
Table 1: Table 2: Table 3: Table 4: Table 5: Table 6: Table 7: Table 8: Table 9: Table 10: Table 11: Table 12: Table 13: Table 14: Table 15: Table 16: Table 17: Table 18: Table 19: Table 20: Table 21: Table 22: Table 23: Table 24: Table 25: Table 26: Table 27: Table 28: Table 29: Growth of countries with 3G commercial services, 2002-2009 Global online video advertisement spend ($m), 200914 Top US online video properties by video views (Jan 2011) Top online video brands in the US by time per viewer per month, January 2011 Top UK online video content properties (November 2010) European mobile TV / Video users (000), July 2010 Mobile content revenues in China by type ($m), 2010 Internet users (m) and total online hours per visitor, October 2010 Global digital music market revenues by segment ($m), 200914 Japanese digital music revenues by segment ($m), 2005-09 Japanese digital music delivery data by segment, 2009 Digital formats share of music sales in the UK (%), 2004 Q310 European mobile benchmark data (% of mobile subscribers), March 2010 Global video gaming revenues ($bn), 200914 Global video gaming software revenues by segment ($bn), 2009-14 Global number of online social gamers by age group (% population), 2010 Global eBooks revenues ($m), 2009-14 US eBooks revenues ($m), 2009-14 Japanese eBooks revenues ($m), 2009-14 Chinese eBook shipments (000 units), 2009-14 Akamai Technologies key clients Akamai Technologies key financials ($m), 2006-10 Limelight Networks key clients Limelight Networks key financials ($m), 2006-10 Level 3 Communications key clients EdgeCast Networks key clients Internap Network Services key clients Internap Network Services key financials ($m), 2006-10 CDNetworks key clients 25 37 41 42 43 44 47 50 62 67 69 71 73 84 85 89 105 108 110 114 131 132 136 138 141 144 146 147 152

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Executive summary
Introduction and market context
Content delivery network (CDN) market is valued at $1.8bn in 2010 with US contributing to 75% of the total content delivery market followed by Europe and Asia Pacific; Improved broadband connectivity, increase in sale of PCs and mobile, and increased adoption of 3G technology has led to increased digital content demand which is driving investments in content delivery networks; CDN copies a website to a geographically dispersed server network and when a user requests for content, the request is redirected to the server which is in closest proximity to the users location, which results in quick delivery of data; Content delivery platforms play an integral role in data transmission in the video, music, and gaming industries; Rising demand of on-demand video, 3DTV, high definition videos, in addition to live web broadcasts is making CDN platform integral for video content delivery; CDN facilitates record companies in monetizing music content by flashing targeted advertisements for users, in addition to supporting music streaming over multiple devices such as PCs and mobiles; Gaming industry depends on CDNs for minimizing performance issues and for deriving cost savings.

The role of Digital Rights Management in content delivery

Digital Rights Management (DRM) is increasingly leveraged by content owners and publishers to provide restricted content access rights to users. DRM technology is widely used in the video, music, gaming, and electronic books industries, to prevent illegal content downloads.

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Although DRM technology has seen huge adoption in the video, gaming, and eBooks segments, it is losing ground in the music industry. Content owners such as Apple continue to provide DRM protected videos. However, the technology is highly criticized by users, who having paid for the content demand full liberty regarding its usage. To stay competitive, music websites have started offering DRM-free music to users. Video game publishers are increasingly investing in DRM controls to prevent content piracy, and to restrict users from sharing games or moving to digital distribution channels such as Steam. However, some gaming companies have started launching DRM-free games in order to gain an edge over the competition. DRM stays strong in the eBooks segment, helping publishers to prevent piracy and ensuring complete content monetization.

Video Content Delivery

Rising demand for high quality video services on multiple devices is driving investment in content delivery platforms. Broadcasters and telecommunication companies are bundling multiple services including digital TV and communication, resulting in increased focus on content delivery networks. The online video advertisement market, valued at $1.4bn in 2010, is expected to grow to $5.2bn by 2014. The growing market for Video on Demand (VoD) services, which entails streaming on an interactive basis, is resulting in greater investments in content delivery platforms. Broadcasters and content owners are exploring newer avenues for monetization of video content with revenue generation options including subscription, advertisements, online rental, and pay per video. The US, Japan, China, and South Korea are key markets for video content services, with the US being the largest market for online videos followed by Japan. 16

Demand for video content is in its nascent stages in emerging markets with video content primarily demanded on mobile devices. While currently broadcasters are delivering content online as well as on traditional entertainment sources, we expect this trend to evolve further with broadcasters / content creators creating exclusive content for online delivery. The future of video content lies in 3D videos and adoption of the cloud for video content storage, with users leveraging a web interface to stream audio and video content without owning global streaming infrastructure.

Music Content Delivery

The value of the global digital music market is expected to reach $16bn in 2014 from $6.6bn in 2009, reporting a CAGR of 19% over the period 2009-14. The online music market will grow at a CAGR of 9.5% during the period 2009-2014, while mobile music and subscription based services will grow at 16.7% and 59.9% respectively during the same period. The music industry witnessed significant growth after several major players removed DRM technology, resulting in increased music downloads. Easy music download options made available on devices such as the iPhone, iPod Touch, and Zune player have revolutionized the music consumption landscape. Subscription based music services are in demand, providing unlimited music streams to consumers for a particular monthly fee. Social functionalities have become an integral part of music websites, allowing closer integration with social networks such as Facebook and Twitter. We expect this trend to evolve further with music websites providing social recommendation and sharing capabilities.

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While demand for subscription based music services is growing in developed markets such as the US, UK, and Japan, the majority of consumers in developing countries such as India and China still prefer illegal online downloads. Piracy is the biggest threat for the music industry, resulting in record companies incurring huge losses. Players such as Amazon are laying greater emphasis on procuring online streaming capabilities. Cloud based digital music storage is gaining traction, with users preferring to use music as a service as and when required rather than carrying all the bulky music files on its device.

Video Gaming Delivery

The global video gaming market recorded growth of 1.1% in 2010 to reach a value of $73bn, driven by 5.8% growth in the gaming software segment, which reached $53bn in 2010. The value of the video gaming market is expected to reach $92.5bn in 2014, compared to $72.2bn in 2009, reporting a CAGR of 5.1% during the period. Console gaming will continue to be the largest segment in the video gaming market but its share is expected to decline from 55% in 2009 to 45% in 2014. The share of online gaming in the total video gaming market is expected to increase from 26% in 2009 to 36% in 2014, while that of mobile gaming is expected to increase from 9% in 2009 to 13% in 2014. The importance of providing an uninterrupted gaming experience to users drives investments in content delivery networks. Social gaming is becoming a significant market in developed and developing economies alike. South Korea, known for its compulsive gamers, is witnessing rising gaming addiction in the country. India is seeing rising adoption of mobile gaming whereas console based gaming remains dominant in China. Piracy and long game development cycles are the key challenges in the gaming industry.

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Console gaming companies such as Sony are focusing on providing users with online functionalities, including social gaming. The market for virtual gaming goods is on a rise with social gaming companies such as Zygna deriving revenues from sales of virtual goods to gamers. In the near future, there will be increased adoption of cloud storage and Massive Multiplayer Online Role Playing Games (MMORPG), which are already very popular in South Korea and China.

eBooks Delivery
Global eBooks market is expected to record a CAGR of 46.4% during 2009-14, reaching a market size of $5.9bn compared to $880m in 2009; eBooks market in the US is expected to overtake Japan in 2011 with sales of over $1.2bn; eBook websites are focusing on making increased number of titles available in electronic format along with enhanced consumer experience through integrated store experience; Innovation in eReaders and other devices such as smartphones and iPads are contributing to the expansion of the digital books market; eBooks market in Europe still struggling with different book formats such as PDF and ePUB, offered by different publishers; eBooks market in the US accounted for $245m in 2009 and is expected to grow to $3.4bn by 2014, CAGR of 69.5% over the period 2009-2014; eBooks market in Japan accounted for $630m in 2009 and is expected to grow to $1.37bn by 2014, CAGR growth of 16.9% over the period 2009-2014; Unfavorable tax policies remain one of the key challenges of eBook adoption; Google leveraging its digitization program and advanced search algorithms allowing users to search text across electronic books;

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eBooks in future will see increased focus on portability across multiple media, formats, and platforms.

The Future of Content Delivery

Rising adoption of high resolution based video content has increased investments in cloud-based streaming services; Users will prefer to view video content as a service favoring video streaming websites which will be a gradual shift from video content ownership; With the advent of streaming and on-demand music services, users can choose not to store and carry their music, and can access music like a service as and when required; Cloud based gaming is gaining market in the casual games segment with serious gamers preferring to own games in physical formats; Adoption of cloud-based electronic books is dependent on the available subscription plans and the affordability of this service when compared with purchasing hardcover books.

Competitive landscape
The CDN market remains dominated by pure play vendors, however, integrated players such as Level 3 Communications are also focusing on garnering a share of the CDN market. Akamai and Limelight Networks hold the majority share of the CDN market. Akamai crossed the $1bn mark in revenues in FY 2010, and has evolved from delivering static content to on-demand content services. Akamai has also started laying stronger emphasis on its advertisement and mobile solution portfolio, considering the increasing importance of advertisements for content owners for monetization of services and the rising market of mobile content delivery. Limelight on the other hand is laying strong emphasis on providing content services to enterprises and the government sector. It is also investing in the development of mobility and monetization solutions with a strong focus on its value added services (VAS) portfolio.

20

Level 3 Communications has a strong focus on offering good quality streaming services at very competitive price points, owing to which it was able to bag contracts such as streaming of the Olympics, the US Democratic National Convention, and US President Barack Obamas inauguration. The company is now focusing on its website acceleration services, including Site Accelerator and Site Transformer. Adobe, InterTrust Rights System, Rovi, Microsoft Contentguard, and IBM are the key vendors operating in the DRM segment.

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Chapter 1 Introduction and market context

Summary
The content delivery network (CDN) market was valued at $1.8bn in 2010, with the US contributing to 75% of revenues. Europe and Asia Pacific are the next biggest markets. Improved broadband connectivity, increases in sale of PCs and mobile phones, and increased adoption of 3G networks has led to increased digital content demand, which is driving investments in CDNs. A CDN copies a website to a geographically dispersed server network. When a user requests access to content, the request is redirected to the server in closest proximity to the users location, which results in quick delivery of data. Content delivery platforms play an integral role in data transmission in the internet video, music, and gaming industries. Rising demand for on-demand video, 3DTV, and high definition video, in addition to live web broadcasts, is making CDN platforms integral to video content delivery. CDNs facilitate record companies to monetize music content by creating targeted advertisements for users, in addition to supporting music streaming over multiple devices such as PCs and mobiles. The video gaming industry depends on CDNs for minimizing performance issues and making cost savings.

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Report scope
This report examines the digital content delivery market with respect to content areas such as video, music, gaming, and eBooks. The prevailing trends and drivers in each of these content areas are analyzed in detail, as are country specific trends. Business Insights also analyzes the content delivery strategies followed by key video, music, gaming, and eBooks companies, and profiles the leading vendors operating in the content delivery network and digital rights management segments. Finally, the report examines the future opportunities and challenges to be faced across each segment of the digital content delivery market.

Who is this report for?

This report will be of interest to corporate strategy decision makers, marketing managers, and product development managers at the following types of organization: Content owners Content creators Online publishers Broadcasters Online gaming companies Content delivery platforms Device manufacturers Business consultants

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Background Content Delivery Networks

The global increase in broadband connectivity and the rise in sales of mobile devices and personal computers is driving consumer demand for digital content. This demand is also supported by the increased adoption of data transmission technologies such as 3G, which has enhanced the digital content viewing experience of users leading to increased traffic volumes for content providers. The chart below highlights the growing global adoption of 3G technology. In 2002, only 2 countries had commercially available 3G services; by 2009, this number had increased dramatically to 130.

Figure 1:
140 120 100 80 60 40 20 0

Growth of countries with 3G commercial services, 2002-09

Number of Countries

2002

2003

2004

2005

2006

2007

2008

2009

Source: ITU

BUSINESS INSIGHTS

24

Table 1: Growth of countries with 3G commercial services, 2002-2009

2002 Number of countries

Source: ITU

2003 9

2004 30

2005 43

2006 70

2007 89

2008 109

2009 130

BUSINESS INSIGHTS

The rising demand for digital content is driving content owners and content publishers to focus on Content Delivery Networks (CDN), which help to provide a high quality content consumption experience for users. A CDN is a network of servers which helps to deliver web pages to users, taking into account factors such as the users geographical location, web page origin, and content delivery server. CDNs typically copy a website to a geographically dispersed server network that caches the website content. When a user requests access to content, the request is redirected to the server which is in closest proximity to the users location, and this server delivers the cached website content. This process helps to improve the speed of data transmission, and has proved useful for websites with high traffic levels and a global user base. The technology is also gaining popularity as it allows for streaming of high traffic live events, by transferring content from the originating server to other servers through satellite links. CDNs are witnessing significant growth, primarily driven by the growing demand for video services encompassing live video streams and event telecasts. Consumer preferences for watching video content over multiple devices and the need for better integration across devices is leading to CDN service growth. While initially CDN vendors were solely focused on video services, they are now also focusing on segments such as gaming and music. The market remains dominated by pure-play CDN vendors, with Akamai and Limelight Networks commanding the majority market share. Detailed profiles of CDN vendors are included later in the report, in the Competitive landscape chapter.

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The global content delivery market

The global content delivery market was valued at $1.8bn in 2010, with the US contributing to 75% of revenues followed by Europe (16%) and Asia Pacific (9%). Rising demand for web-based content and live broadcasts has given impetus to video CDN growth, which continues to dominate the CDN market, followed by gaming, music, and eBooks. With respect to geography, the US is the key market in terms of demand for digital content. In Europe, digital media demand is driven by countries such as the UK, France, and Germany. In the Asia Pacific region, Japan, China, and South Korea are the key markets for digital content demand although some of these markets are struggling against rampant digital piracy.

Figure 2:

CDN revenues by geography (%), 2010

US

Europe 16%

9%

75% Asia Pacific

Source: Business Insights

BUSINESS INSIGHTS

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Role and importance of content delivery

Content delivery platforms are leveraged extensively for the delivery of digital content such as music, videos, games, and electronic books, details of which are highlighted below.

Video
CDN players earn the highest share of their revenues from the video segment. The rise of on-demand video, 3DTV, high definition videos, and live web broadcasts is making CDN platforms integral to video content delivery. These platforms help content publishers to transmit content in real time and manage website traffic during peak times. CDNs also help content providers to manage the high volumes of user generated content, and address challenges pertaining to content monetization by placing localized advertisements for individual users. Users are also leveraging multiple devices, from PCs to mobile phones, to view videos and are demanding greater integration between these devices. The need to provide high quality video content to users over multiple devices with no glitches or delays is increasing the importance of content delivery networks; any problems can lead to the content provider losing customers.

Music
Within the music industry, rampant piracy is leading to revenue losses for record companies, which have now started focusing on new means to monetize their content. Such measures include providing music to users for free, supported by advertisements and subscription based services in which users can stream unlimited music on multiple devices for a monthly fee. This monetization is supported by CDNs, which help by providing targeted advertisements for users depending on their profile information stored in the CDN database, and by facilitating music streaming over multiple devices. CDNs have also gained importance due to the entry of telecommunications providers into the music space, which are providing subscribers with bundled products combining communication facilities with music. CDNs are helping operators with service bundling by integrating multiple services over multiple devices.

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Gaming
The rising popularity of online gaming has made CDNs an integral investment for the gaming industry. To provide a good gaming experience to users, gaming websites require quick access to the server considering that even a slight delay in data download can disrupt gamers experience. In addition to enabling quick downloads of large gaming files, these websites cater to a very geographically dispersed user base, which makes CDNs essential for the gaming industry. CDNs help with minimizing performance issues and also result in cost savings for content publishers, as they are not required to purchase additional capacity to address the peak traffic loads. CDNs can also help by providing the same gaming experience to users over multiple devices.

eBooks
Compared to services such as video, music, and gaming, eBooks have a minimal contribution to CDN providers revenues. The segment is dominated by DRM technology, examined in detail in the following chapter.

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Chapter 2 The role of Digital Rights Management in content delivery

Summary
Digital Rights Management (DRM) is increasingly leveraged by content owners and publishers to provide restricted content access rights to users. DRM technology is widely used in the video, music, gaming, and electronic books industries, to prevent illegal content downloads. Although DRM technology has seen huge adoption in the video, gaming, and eBooks segments, it is losing ground in the music industry. Content owners such as Apple continue to provide DRM protected videos. However, the technology is highly criticized by users, who having paid for the content demand full liberty regarding its usage. To stay competitive, music websites have started offering DRM-free music to users. Video game publishers are increasingly investing in DRM controls to prevent content piracy, and to restrict users from sharing games or moving to digital distribution channels such as Steam. However, some gaming companies have started launching DRM-free games in order to gain an edge over the competition. DRM stays strong in the eBooks segment, helping publishers to prevent piracy and ensuring complete content monetization.

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Introduction
This chapter examines the impact of Digital Rights Management (DRM) technology, elaborating on its usage and key components. It provides information on the role of DRM in the video, music, gaming, and eBooks markets, and highlights the strategies followed by companies to stay competitive.

Background
Digital Rights Management (DRM) is a term used to describe anti-piracy controls leveraged by content owners to regulate access to and usage of content. It helps to manage the flow of digital information as content travels through the value chain, starting from the content creators to publishers, distributors and retailers, and finally reaching consumers. With rising digitization in the music, video, gaming, and publishing industry, technologies such as DRM are becoming important to prevent piracy and to provide content owners with the required monetization method for their content. The key components of a DRM system are highlighted below: Access and usage control: Leverages technologies such as symmetric and asymmetric encryption, passwords, and copy protection to control content usage and access. Protection of authenticity and integrity: Technologies such as watermarks and digital signatures are used to secure object authenticity and integrity. Identification by metadata: Assigns metadata to digital content to automate the distribution of digital content. Specific hardware and software for end-devices: Protects end-devices or part of end-devices, in addition to hardware such as smartcards or dongles and software such as Windows Media Player or Real One Player. Copy detection system: Search engines leveraging watermarking or digital fingerprinting search for illegal copies of digital content.

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Billing systems: Includes billing systems which can manage multiple pricing models such as pay per use and monthly subscription, and billing systems such as monthly billing, credit card systems, electronic payments or micropayment systems. Integrated e-commerce systems: Includes systems with information related to accounting and other business information.

Increasing role of DRM in media and entertainment

DRM is widely used in the video, music, gaming, and electronic publishing industries to prevent illegal download of content, in an effort to reduce piracy. However, it remains a controversial technology. Consumers have shown widespread dissatisfaction with DRM-based products, claiming that it prevents them from enjoying the rights of legitimate users. Increased consumer preference for DRM-free products has resulted in many content owners removing DRM from their products, leading to increased market share. The role of DRM in the key industries is highlighted below.

Video
While DRM technology is losing ground in the music industry, it continues to remain strong in the video market. For instance, while Apple has removed DRM from its music offerings, it continues to provide videos with DRM controls. Similarly, Amazons Video on Demand (VoD) services are DRM-based. DRM is also leveraged on DVDs. For instance, Avatar was released on Blu-ray discs with DRM technology. However, users continue to resist DRM as it restricts them from playing a downloaded video on multiple devices. For example, videos downloaded from Amazon VoD cannot be played on Apples iPad, and many other noncompatible devices. This dissatisfaction is driving the sale or downloads of products that remove DRM from videos and other media files.

Music
DRM saw significant adoption in the music industry by allowing digital copyright owners to provide restricted content access to users, thereby reducing illegal downloads. However, it has been facing strong criticism from users. DRM-protected music restricts file sharing and provides content owners with powers to control 31

how customers use their content; this has raised concerns among consumers who have paid for DRMprotected music and wanted full liberty regarding its usage. As DRM protected music files are not very appealing to consumers, music companies and websites started providing DRM-free music to users. In 2007, EMI and Vivendi's Universal Music Group started this trend, followed by Warner Music Group and Sony BMG in late 2007 and early 2008, respectively. This trend also permeated the on-demand music streaming segment: leading streaming websites iMeem and Lala do not leverage DRM. In 2009, Apple, which only sold DRM-free tracks from one record label, EMI, also removed the DRM restrictions on tracks from three other record labels: Sony BMG; Warner Music; and Universal. By 2009, out of a catalog of 10 million tracks, Apple provided a total of 8 million DRM-free tracks.

Gaming
Video game publishers are increasingly investing in DRM controls to prevent content piracy, and to restrict users from sharing games or moving to digital distribution channels such as Steam. DRM has helped publishers with a focus on PC games. By leveraging DRM, retail publishers can limit the number of times a game can be installed on a system, some of them allowing no more than five installations. However, DRM is not appreciated by users due to the imposed restrictions. For instance the need to stay online to play a game, as mandated by a few DRM-based games, has not proved universally popular. Some of the DRMbased games launched in the past have seen massive protest from gamers. For instance, EA Games launched Spore in 2008, and announced that users could only install the game three times. This resulted in significant protest among gamers who encouraged fellow gamers to illegally download the game instead of buying it. Spore became the most pirated game of 2008, with 1.7 million illegal downloads. As DRM requires users to frequently verify their details, it is being perceived as an infringement of privacy. In order to provide hassle-free gaming, some games publishers are shifting their focus away from DRM to provide a more user-friendly gaming experience. For instance, Ubisoft sold Prince of Persia without DRM. Similarly, Electronic Arts launched The Sims 3 with users requiring only the CD key to play the game, rather than online authentication. Other publishers such as 2D Boy and Stardock plan to sell all their games without DRM, and this move is greatly appreciated by gamers. 32

eBooks
While DRM technology implemented for eBooks is helping publishers to prevent piracy and ensure complete content monetization, it remains highly criticized by paying readers who demand full control of the content, including rights to share and transfer the digital books on any device of their choice. A recent event highlighting the criticism of DRM-based eBooks was when Amazon remotely accessed its customers Kindle machines and deleted two eBooks without seeking clients permission. Later the company credited the customers account with the money spent on buying those specific eBooks. Taking into account these consumer concerns, a few players have attempted to gain an edge over the competition by providing DRM-free eBooks. For instance, in 2009 Sony announced that it would drop its proprietary DRM technology for eBooks, and sell its EPUB books leveraging Adobe's CS4 server side copy protection. This shift was initiated to provide consumers with a common format and common content protection solution, irrespective of the device in use. In January 2010, O'Reilly, a leading publisher of technology books, removed DRM from its digital books, and reported a significant increase in sales. Several vendors such as Adobe, Microsoft Contentguard, and InterTrust are focusing on providing DRM solutions to users, details of these companies are included in the Competitive landscape chapter.

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Chapter 3 Video Content Delivery

Summary
Rising demand for high quality video services on multiple devices is driving investment in content delivery platforms. Broadcasters and telecommunication companies are bundling multiple services including digital TV and communication, resulting in increased focus on content delivery networks. The online video advertisement market, valued at $1.4bn in 2010, is expected to grow to $5.2bn by 2014. The growing market for Video on Demand (VoD) services, which entails streaming on an interactive basis, is resulting in greater investments in content delivery platforms. Broadcasters and content owners are exploring newer avenues for monetization of video content with revenue generation options including subscription, advertisements, online rental, and pay per video. The US, Japan, China, and South Korea are key markets for video content services, with the US being the largest market for online videos followed by Japan. Demand for video content is in its nascent stages in emerging markets with video content primarily demanded on mobile devices. While currently broadcasters are delivering content online as well as on traditional entertainment sources, we expect this trend to evolve further with broadcasters / content creators creating exclusive content for online delivery. The future of video content lies in 3D videos and adoption of the cloud for video content storage, with users leveraging a web interface to stream audio and video content without owning global streaming infrastructure.

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Introduction
This chapter brings to light the growing demand for video content services, and how these services are expected to grow in the next 3-4 years. It further elaborates on the following: Factors driving the demand of content delivery networks in the video content segment Key trends prevailing in the video content space Video content adoption trends in geographies such as the US, UK, Japan, South Korea, France, China, India, and Brazil Content delivery strategies of ABC TV, Netflix, Hulu, and Comcast Challenges faced in video content delivery The future of video content delivery.

Background
Online video content demand is showing significant growth driven by the rise in Internet traffic, burgeoning user generated content, and shift in consumer preference towards online interactive television. In addition to the provision of accessing video content through devices such as mobile phones, TVs, and PCs, this has given the required impetus to video content growth. These developments have made content delivery networks a critical investment area for broadcasters and content owners who lay strong emphasis on timely delivery of good quality content. To deliver content over the Internet, broadcasters typically leverage the following methodologies: Streaming: Streaming allows users to watch videos as soon as the download begins, so users are not required to wait for full or partial download of the file. This methodology is leveraged for broadcast of live events and on-demand delivery. Progressive download: This is a hybrid model and utilizes the features of a video buffer. This method downloads a video in parts and while the user is watching a part of the downloaded video stored in the 35

video buffer, other parts of the video are downloaded. Video sharing site YouTube is an example of a site that leverages the progressive download method.

Online video advertisement spend forecast, 200914

Digital video content is recording significant growth with online video viewership recording a steep rise, increasing from 63 billion videos viewed in 2006 to 441 billion in 2010 (as reported by comScore). Most videos watched by viewers are free-to-air and are typically monetized through advertisements, and this has resulted in a rapidly growing market for online video advertisements. The global online video advertisement market was valued at $1.4bn in 2010 and is expected to grow to $5.2bn by 2014 at a CAGR of 37.8%.

Figure 3:

Global online video advertisement spend ($m), 200914

6000

Online video advertisement spend ( $m)

5000

4000

3000

2000

1000

0 2009 2010 2011 2012 2013 2014

Source: comScore

BUSINESS INSIGHTS

36

Table 2: Global online video advertisement spend ($m), 200914

2009 Spend ($m) Growth (%)

Source: comScore

2010 1440 39.9%

2011 1966 36.5%

2012 2858 45.4%

2013 3844 34.5%

2014 5202 35.3%

CAGR 49.9%

1029

BUSINESS INSIGHTS

Growth drivers
The distribution and demand of high quality video content across platforms, and growing content volume, are driving growth in content delivery services.

Demand for high quality video propelling content delivery platform investments
The increase in demand for high quality video services is accelerating investments in content delivery platforms. Worldwide broadband penetration growth has resulted in increased consumption of video services over the web, and this demand is anticipated to grow further with the arrival of 3DTV and high quality streaming. To stay competitive and to cater to the growing market for online video content, it has become imperative for broadcasters and other content providers to invest in content delivery services and platforms, which can provide efficiency, scalability, and content security.

Video content demand on mobile devices presenting new revenue opportunities

Demand for video content on mobile phones, driven by the introduction of widescreen mobile phones and 3G services, is presenting new revenue opportunities for content owners. Mobile video constitutes the majority of mobile data traffic, and (according to Cisco Systems) mobile video will generate 66% of mobile data traffic by 2015. Mobile devices such as smartphones and tablets are encouraging broadcasters to rethink their content delivery strategy. For instance, Apples iPad, which registered a million unit sales within a month of its launch, is increasing web content demand and is driving content owners and distributors to exploit such

37

devices for delivering ad-supported premium content. The need to deliver video content over multiple end user platforms is driving investments in content delivery technologies and platforms.

Service bundles driving the demand of multi-play service platforms

Another key driver accelerating the demand of content delivery platforms is the growing adoption of bundled services. To increase the current subscriber base and average revenue per user (ARPU), cable companies, broadcasters, and telecommunication companies are focusing on bundling multiple services such as digital TV, home phones, mobile services, and broadband. For instance, in the UK, Virgin Media offers quad play services to its subscribers. This includes Virgin digital TV, broadband, wired and mobile phone services. It also offers users a choice of TV boxes. Similarly, other players such as Rogers (Canada) and Sky (UK) are offering triple play and quad play services to users. This is driving demand for content delivery networks with multi-play service platforms, which help service providers and broadcasters to bundle video with other data and telephony services.

User generated content increases video sharing website traffic

The mushrooming amount of user generated content (UGC) has seen a significant increase in the number of video sharing sites. Websites such as YouTube, AOL Video, Vevo, BuzzNet, CastPost, OurMedia, and VidMax have recorded a significant increase in subscriber base over the years. For instance, according to comScore Videomatrix Data, Vevo had 50.3 million and AOL 47.7 million unique viewers in November 2010, and the number of video streams served by AOL rose from 192 million in July 2010 to 493 million in October 2010. This steady growth in video streams and subscribers is encouraging companies to invest in advanced content delivery systems to deliver content in an efficient and timely manner.

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Key trends
Monetization of content and adapting content according to end user need and platforms are essential for survival in an increasingly competitive video delivery market. The details of the key trends prevailing in this market are highlighted below.

Increased investments in platforms supporting multiple end user devices

Consumers are gradually shifting their preference from traditional entertainment sources to online or mobile media to watch television and other video content. This shift is driven by the functionalities made available by online broadcast, some of which includes providing more information to viewers on the show and the cast, providing functionalities such as sharing and commenting on social networking sites, and participating in quizzes related to the show. The launch of widescreen phones and tablets such as the iPad, Dell Streak, and Samsung Galaxy has further augmented the demand for web videos. This trend is driving broadcasters to invest in content delivery systems which can facilitate content access on multiple platforms such as mobile, PCs, and tablets, and through multiple gateways including social networking sites.

Video content monetization through subscriptions and advertisements

Broadcasters and content owners are exploring new avenues for monetization of their video content. Revenue generating strategies include subscriptions, advertisements, online rental, and pay per view. Video content websites are offering subscription based services to users in which users pay a flat fee to access unlimited movies and TV shows. For instance, Amazon is in talks with Time Warner, Viacom, and NBC Universal to initiate its subscription based video service in which users will be able to download unlimited movies and TV shows for a flat fee. In addition to subscription, another content monetization strategy includes revenue generation through advertisements. Hulu Plus, an online broadcaster in the US, is following this strategy, and claims that more than 40% of the revenues generated from the video content segment are through advertisements. To generate more advertisement based revenues, Hulu Plus is launching personalized advertisements for users by addressing them by name. Online broadcasters are also leveraging on the pay per view model in which 39

the user is only required to pay for the content they want to view on a one-off basis. For example, Comcast offers users an option to buy live sporting event streams, and users are only required to pay for a particular event.

Growing market for Video on Demand

The growing market for Video on Demand (VoD) services, which entails streaming on an interactive basis, is resulting in greater investments in content delivery platforms. To differentiate from competitors, broadcasters are making available a plethora of movie titles to users, and are offering full DVD functionalities such as fastforward and rewind. In addition to content owners, this segment is also tapped by cable TV operators and telecommunication companies. There are numerous VoD products available in the market launched by companies such as Apple (with Apple TV), Amazon, CinemaNow, and VUDU. To improve market presence, companies are offering a wide selection of movie titles to users along with numerous interactive services. Such initiatives will see a rise in demand for content delivery related services and platforms.

Increased personalization in content display based on users interest areas

The high growth potential presented by the online broadcast segment has resulted in a growing number of online video delivery websites. In order to differentiate from competitors, websites are altering web content according to different individuals. This web content change is based on the users profile, interests, and search history retrieved from content delivery platforms. This helps companies to display targeted advertisements to users, thereby generating greater advertisement based revenues. In addition, it helps to improve customer loyalty as the website displays content which might be of interest to the user. For instance, YouTubes home page displays a section Recommended Videos and Channels you might like based on the search history of the user.

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Trends in video content delivery by region

US
The US is witnessing significant growth in numbers of online video content viewers. A total of 171 million Internet users in the US watched online video content in January 2011 for an average of 14.5 hours per viewer (as reported by comScore), with approximately 4.9 billion viewing sessions recorded during the month. Google sites commanded the highest market share, with 144 million viewers driven by videos streamed from YouTube. VEVO and Yahoo sites recorded the second and third highest viewership, registering 51 million and 48.7 million viewers respectively.

Table 3: Top US online video properties by video views (Jan 2011)

Property Total internet audience Google sites VEVO Yahoo! Sites Viacom Digital AOL, Inc. Facebook.com Microsoft sites Turner Digital Fox Interactive Media Hulu
Source: comScore Video Metrix

Total Unique Viewers (000) 171,180 144,058 51,025 48,721 48,141 44,525 42,058 38,142 28,205 25,400 24,958

Viewing Sessions (000) 4,887,682 1,912,534 121,013 193,020 119,634 167,754 122,623 149,641 88,721 57,604 127,042

Minutes per Viewer 870.8 283.4 91.9 38.0 61.1 22.5 15.4 62.0 26.6 18.2 236.4

BUSINESS INSIGHTS

With respect to time spent on a particular website, subscription-based video streaming service Netflix had the leading position in January 2011, followed by Tudou.com and Hulu, details of which are highlighted in Table 4:

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Table 4: Top online video brands in the US by time per viewer per month, January 2011

Video brand Netflix Tudou.com Hulu Megavideo StageVU Justin.tv YouTube Veoh Nickelodeon Family & Parents Cwtv.com
Source: The Nielsen Company

Time per viewer 11:08 06:30 05:35 03:39 02:52 02:33 02:23 02:16 02:06 01:44

Month-Over-Month change in time per viewer (%) 22.9 17.4 13.9 15.6 -65.9 55.5 -3.0 99.7 11.5 -38.3

BUSINESS INSIGHTS

Online television is a growing phenomenon in the US, and is expected to grow further in terms of viewership to overtake broadcast television in the next 8-10 years.

Japan
Japan is a growing market for video streaming services due to the high broadband penetration in the country. In January 2010, there were over 60 million Internet video users in Japan, and this number is expected to grow to 70 million by 2014, according to comScore. Due to the present broadband speeds in the country, it is a very sought-after destination for next-generation applications such as high quality video streaming. Japan is the second largest market for online videos after the United States, and multiple companies are making sure that they have a presence in the country. Recently, Ooyala, a California based online video service provider, collaborated with Yahoo Japan to distribute videos in the country. Similarly, Crunchyroll, an online video service, has become a very popular service in Japan (it has been coined as Japans Hulu) leading to an investment of $750,000 from TV Tokyo. The site leverages a dual strategy for the Japanese

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market by providing ad-based free content in addition to subscription based premium content without advertisements, with subscription fees ranging from $7-12 per month.

UK
The UK is a growing market for video based content. In November 2010, the country recorded a total of 34.7 million unique online video viewers, who viewed 6 billion videos. Google sites are the most watched sites in the country with 30.4 million unique viewers, followed by BBC sites (9.9 million unique viewers) and Vevo (9.7 million unique viewers). Details are highlighted in the table below.

Table 5: Top UK online video content properties (November 2010)

Property Total internet audience Google sites BBC sites VEVO Facebook.com Dailymotion.com

Viewing sessions (000) 963,971 427,608 46,845 41,430 28,205 13,099

Total unique viewers (000) 34,720 30,401 9,917 9,774 8,819 3,382

Videos viewed (000) 6,032,002 2,831,218 146,240 71,174 42,328 33,282

Source: comScore Video Metrix

BUSINESS INSIGHTS

To increase its existing dominance in the country, Google launched an unlimited on-demand movie streaming service in the UK through YouTube in H12011. In launching both this video-on-demand service and access to TV channels, Google is placing itself in direct competition with more traditional local TV providers such as Sky. Streaming mobile TV is also an upcoming segment in the UK and mobile operators such as O2, Orange, and Vodafone, are conducting trials of a new broadcast technology called Integrated Mobile Broadcast to cope with the rising demand in data traffic.

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France
With 39.3 million online video viewers and 5.5 billion videos viewed in October 2010, France is an upcoming market for video content. It is also a huge market in Europe for mobile content services with 64.4 million mobile subscribers (as on Q4 2010). Mobile video and TV are upcoming content applications and users are increasingly leveraging mobile devices to view streaming videos and on-demand programs. To address this rising demand, MVNO Virgin Mobile France and broadcast services provider TDF are planning to launch DVB-H mobile TV services in the second half of 2011, with the aim of providing coverage for half of the French population. In July 2010, France had 2.5 million mobile video users, up 53% from July 2009, as reported by comScore. In addition, 68% of mobile users leveraged smartphones to access mobile videos, details of which are highlighted below:

Table 6: European mobile TV / Video users (000), July 2010

Jul-09

Jul-10

% Change

Smartphone subscribers who watched TV/Video on mobiles (000) 2,174 1,752 1,741 1,329 1,212 8,208

Proportion of total viewers viewing on smartphone (%) 80.2% 64.6% 67.7% 54.5% 71.7% 67.7%

UK Italy France Germany Spain EU5

1,553 1,750 1,684 1,416 890 7,292

2,712 2,711 2,570 2,438 1,691 12,122

75% 55% 53% 72% 90% 66%

Source: comScore MobiLens

BUSINESS INSIGHTS

South Korea
While mobile TV viewing is catching up in countries such as China and Brazil, it continues to hold a leading position in South Korea. Mobile TV is very popular in the country with approximately 27 million users (56% of the population) watching television through this medium, as reported by The New York Times. Out of these 44

27 million users, 25 million watch free ad-based television broadcasts on mobile devices while the other two million pay to subscribe to satellite programs. South Korea being one of the most technologically advanced country holds a leading position in video content services globally (along with China); approximately 47% of broadband consumers who participated in an Ovum survey reported watching internet videos several times a week. Details are highlighted in the figure below:

Figure 4:

Frequency of watching Internet video by country, 2009

Others UK Once a week 68% Several times a week 13% 19%

France

58%

19%

23%

US

40%

19%

41%

Korea

29%

24%

47%

China

6%

14%

80%

0%

20%

40%

60%

80%

100%

% of surveyed broadband consumers

Source: Ovum
BUSINESS INSIGHTS

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India
The video content streaming market in India is still in its infancy, with mobile expected to contribute to its growth in the coming years. While the live streaming segment is showing some growth, most of the content streams delivered on mobile and PCs are free of charge with limited monetization through advertisements. For example, live video streams of the 2010 Commonwealth Games were made available via mobile. These mobile video streams were available free of charge, with users paying only for the data access. On-demand video streaming consumption is also in its nascent stage with only a handful of players such as MyBigFlix.com (part of Reliance BIG Entertainment) offering on-demand streaming services. MyBigFlix.com provides users with content streams encompassing movies, TV shows, and music videos. The company is laying strong emphasis on providing localized content, and while it reports of 5-6 million unique visitors in India spending an average of 110 minutes per month on its website, revenue details are not divulged by the company. India has good future potential for video content streaming driven primarily by rising Internet usage and launch of 3G services. However, monetization of content remains an issue in the country with most live streams deriving revenues through advertisements instead of subscriptions. Another focus area remains localization of content. Content related to cricket and the Indian film industry is most in demand.

China
Mobile phones are ubiquitous in China with more than 850 million mobile subscribers, making it one of the key markets for mobile based content. Mobile video and TV, though accounting for less than 1% of total mobile content revenues, was valued at 127m ($176.2m) and 34m ($47.8m), respectively, in 2010.

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Figure 5:

Mobile content revenues in China by type ($m), 2010

Mobile messaging Mobile Internet Mobile music Mobile image Mobile games Mobile video Mobile TV 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000
BUSINESS INSIGHTS

Source: Informa Telecoms & Media and Netsize

Table 7: Mobile content revenues in China by type ($m), 2010

Revenues ($) Mobile TV Mobile video Mobile games Mobile image Mobile music Mobile internet Mobile messaging Total content revenues
Source: Informa Telecoms & Media and Netsize

% of total revenues 0.2% 0.7% 1.1% 2.1% 11.8% 22.0% 62.1% 100.0%
BUSINESS INSIGHTS

45.1 168.6 270.8 520.4 2,889.9 5,369.6 15,192.9 24,457.3

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With major operators such as China Mobile investing significantly in 4G technology, services such as mobile TV and video are expected to register further growth, and with smaller operators such as China Unicom and China Telecom expected to follow suit, users will be able to access advanced video related services in the country, further spurring content services growth.

Brazil
Brazil has the largest online population in Latin America, with 40 million internet users as of December 2010. The country has more than 33 million unique online video viewers (86% of the web population) who viewed 2.9 billion videos in October 2010. comScores Video Metrix also evaluated Google sites, predominantly YouTube, as the most viewed video site in Brazil, followed by media conglomerate Globo Organization, and Microsoft sites. Brazilians also spend considerable time online, similar to users in South Korea and France, averaging around 24.3 hours per month, details of which are highlighted in the figure below. Brazil is also witnessing an increase in mobile TV adoption, leading to significant rise in demand for mobile TV enabled handsets with users preferring to watch television on the go. Claro was the first MNO to launch mobile TV services in the country, followed by operators such as Brasil Telecom and Oi. With big media groups investing in providing mobile television services in the country at affordable rates, Brazil is expected to be a very sought-after destination for advertisers and content developers.

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Figure 6:

Internet users (m) and total online hours per visitor, October 2010

50 45 40 35 30 25 20 15 10 5 0 France

Internet users (m)

Total online hours per visitor

India

Brazil

UK

South Korea Canada

Italy

Source: comScore Video Metrix

BUSINESS INSIGHTS

49

Table 8: Internet users (m) and total online hours per visitor, October 2010

Internet users (m) France India Brazil UK South Korea Canada Italy
Source: comScore Video Metrix

Total online hours per visitor 25.7 12.1 24.3 30.6 27.8 44.9 16.0

41.9 41.6 40.0 38.6 30.2 23.0 22.7

BUSINESS INSIGHTS

Challenges in video content delivery

The increase in demand for video content on the web across multiple end user devices has made conventional content delivery systems obsolete. To effectively deliver rich media content to users and to overcome content delivery challenges, content owners are leveraging novel and innovative content delivery solutions. The main challenges are summed up below.

Delivering content on multiple platforms

The rise in demand for content services on multiple platforms such as PCs, mobile phones, netbooks, and gaming consoles, etc presents the challenge of adapting video content according to a particular screen or terminal size. With the introduction of wide screen mobile phones, high bandwidth technologies such as 3G, HSDPA, WiMAX and LTE, users are increasingly demanding access to video content such as news, sports, and other user generated content through their mobile devices. This requires content adaptation and content transcoding in real time depending on the content accessed and the device type used for accessing the content. Timely delivery of good quality content across platforms remains one of the key video content delivery challenges faced by broadcasters and content owners. 50

Scalable content delivery systems to accommodate growing internet content

Another challenge faced by content owners is to maintain scalable content delivery solutions which can grow exponentially with growing internet content. With a rise in the number of TV shows and movie titles broadcasted to viewers online, in addition to the ever increasing amount of user generated content, content owners are struggling to store and manage content in a cost effective manner.

Delivering good quality content

One of the key challenges in delivering video content is the speed of download, which is also a key differentiating factor for broadcasters delivering online content. Variation in bandwidth availability of a broadcasters streaming server can result in packet corruption or packet loss which impacts the quality of video being watched by the user. Download speed is one of the most significant factors in delivering good content viewing experience to viewers, absence of which can result in loss of revenues and customer loyalty.

Content delivery strategies followed by key video companies

ABC delivers interactive television services on iPad
American network ABC has successfully leveraged the iPad to bring innovation in delivering content to end users. ABCs iPad application provides users with vodcasts and ABC TV shows segmented according to multiple categories such as news, entertainment, and TV. This is claimed to be one of the most viewed free service available in the iPad store. ABC provides iPad users with access to more than 20 TV shows for free, with advertisements. While ABCs video streaming was initially only supported over WiFi, it now also supports 3G.

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Figure 7:

ABC on iPad

Source: ABC

BUSINESS INSIGHTS

ABC has also launched its application, My Generation Sync, which offers an interactive experience to users while watching the TV show My Generation. The application displays polls and trivia while a user is watching the TV show, and incorporates networking by allowing users to share and post on social networks such as Twitter. This application leverages iPads microphone to capture sounds from My Generation, and uses an audio watermark to deliver interactive data to the viewers. This is an example of the attempts to provide TV viewing to iPad users in an interactive manner. ABC is leveraging Nielsens media sync platform which allows mobile applications to synchronize with TV programming leveraging audio watermarks. Although ABC withdrew the application in 2010, it is planning to re-launch it with another TV show, speculated to be Greys Anatomy.

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Figure 8:

Example of ABCs interactive My Generation experience

Source: ABC

BUSINESS INSIGHTS

Netflix offers subscription based on-demand video streaming services

US-based Netflix offers on-demand video streaming, enabling users to watch movies and TV shows online. It also offers Netflix update applications for social networking sites such as Facebook and allows users to rate movies, and share reviews with friends. It offers users unlimited access to movies and TV shows via PCs or TV sets for a monthly subscription fee of $7.99. It also offers streaming on multiple devices including Microsofts Xbox 360, Nintendo Wii, and Sonys PS3 consoles, and is experiencing increasing investor confidence as seen in the stock price movement shown below for the period March 2010 March 2011.

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Figure 9:

Netflix share price movement, March 2010 March 2011

Closing share price

250

200

Share price ($)

150

100

50

Source: Netflix

BUSINESS INSIGHTS

Netflix is showing rapid growth and adoption in the US and Canada with a combined subscriber base of 23 million from these markets. It announced in July 2011 that it is planning to further expand its service into 43 Latin American and Caribbean countries. Such is the widespread adoption of Netflix that several consumer electronics manufacturers such as Sony, Sharp, Toshiba, and Panasonic, are including Netflix branded buttons on their remote controls for new Connected TV sets. This will of course help to provide easy access to Netflix, resulting in increased mind share for the company.

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Figure 10:

Netflix button on remote controls

Source: Netflix

BUSINESS INSIGHTS

Hulu offers both free advertisement supported & subscription based content
Hulu, a joint venture between NBC Universal, Fox Entertainment Group, Disney-ABC Television Group, and Providence Equity Partners, offers web based movie and TV services to users. It offers both a subscriptionbased (branded as Hulu Plus) and a free ad-supported model that provides users with live streams on multiple devices such as Blu-ray players, gaming consoles, PCs, smartphones, and tablets. It offers a monthly subscription plan at $7.99, which provides access to TV shows and movie titles from approximately 190 content providers. Hulu Plus can be accessed from multiple connected devices such as Sonys Wi-Fi enabled Dash tablet and a Boxee Box, and is also available in the Roku channel store.

55

Figure 11:

Subscription based service offered by Hulu Plus

Source: Hulu

BUSINESS INSIGHTS

Comcast launches one of the first TV Everywhere service in the US

Comcast, one of the largest cable operator and internet service provider in the US, launched one of the first TV Everywhere services in the US, branded as Fancast Xfinity TV. Comcast claims to have 12,000 video assets in the Fancast Xfinity TV library, and broadcasts content from over 30 content providers such as HBO and Cinemax in partnership with content provider Time Warner. However, the main limiting factor is that users need to subscribe to both Comcasts cable TV and internet services in order to access the service. Companies such as Netflix, Hulu, and Comcast highlight the increase in convergence in online and broadcast markets in which video services are made available on PCs and web-based services are available on television to provide increased interactivity to users.

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The future of video content delivery

Shift to 3D format
To stay competitive and to generate greater revenues, broadcasters are currently focusing on providing online television services to users. The current focus of broadcasters is to deliver high quality content online coupled with interactive applications to provide a better viewing experience to users. Along with establishing their presence in online television medium, broadcasters are also looking into the possibilities provided by delivering 3D content. While online broadcasters such as Netflix have started offering high definition (HD) content to users, they still dont provide 3D streams. The primary limiting factor for 3D streaming is bandwidth constraints, and as companies overcome this challenge they will be able to provide a more advanced content viewing experience to users. Samsung plans to provide users with access to 3D movie trailers through its online application store. Business Insights expects that in the near future, online broadcasters will lay increasingly stronger emphasis on 3D content in order to differentiate themselves from competitors. With the advent of technologies that do not require users to wear glasses to view 3D content, demand for 3D services will see a rise. The shift from HD to 3D presents numerous opportunities for content delivery network providers.

Internet-only video providers

While currently broadcasters are delivering content online as well as on traditional entertainment sources, we expect this trend to evolve further with video providers creating exclusive content for online delivery. This is driven by the trend of consumers increasingly preferring to access content online at a time and place of their choosing, rather than adhering to broadcaster schedules. The maniaTV Network, an internet-only broadcast network, has bypassed the traditional broadcast medium and is developing content only for online delivery. It is reporting significant success with more than five million viewers every month.

Transition to the cloud

The video content delivery market has evolved significantly over the years. The initial delivery mechanism included static download in which users downloaded the complete file to be viewed and were able to access

57

the file only after the download was complete. This was followed by progressive download in which users could download a video in parts, and watch and download the video consecutively. The content delivery process was revolutionized with the introduction of streaming which allowed users to watch live telecast of events and video on demand, and this mechanism is expected to evolve further with the adoption of the cloud. The content delivery cloud provides users with a web interface to stream audio and video content without owning global streaming infrastructure. For instance, Amazons web based CloudFront solution supports on-demand streaming, and can stream content from 14 locations including US, Europe, and Japan, and it automatically directs users to the best streaming location. The adoption of the content delivery cloud will further improve the current content delivery process resulting in greater efficiency and scalability, and will help content owners reduce content delivery cost.

Packaged applications delivered over tablets

Mobile applications will see significant growth driven by the rise in innovation in end user devices such as iPads and other tablets. There is a huge demand for tablets in developed markets, and content owners are focusing on creating innovative applications to exploit this premium distribution channel for selling content. Broadcasters are launching numerous interactive applications for users viewing video on their tablets, and this trend will evolve further with broadcasters moving towards packaged applications similar to those offered through Apples App Store and Androids Marketplace.

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Chapter 4 Music Content Delivery

Summary
The value of the global digital music market is expected to reach $16bn in 2014 from $6.6bn in 2009, reporting a CAGR of 19% over the period 2009-14. The online music market will grow at a CAGR of 9.5% during the period 2009-2014, while mobile music and subscription based services will grow at 16.7% and 59.9% respectively during the same period. The music industry witnessed significant growth after several major players removed DRM technology, resulting in increased music downloads. Easy music download options made available on devices such as the iPhone, iPod Touch, and Zune player have revolutionized the music consumption landscape. Subscription based music services are in demand, providing unlimited music streams to consumers for a particular monthly fee. Social functionalities have become an integral part of music websites, allowing closer integration with social networks such as Facebook and Twitter. We expect this trend to evolve further with music websites providing social recommendation and sharing capabilities. While demand for subscription based music services is growing in developed markets such as the US, UK, and Japan, the majority of consumers in developing countries such as India and China still prefer illegal online downloads. Piracy is the biggest threat for the music industry, resulting in record companies incurring huge losses. Players such as Amazon are laying greater emphasis on procuring online streaming capabilities. Cloud based digital music storage is gaining traction, with users preferring to use music as a service as and when required rather than carrying all the bulky music files on its device.

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Introduction
This chapter provides information on the digital music content space, highlighting growth trends over the next 3-4 years. It further elaborates on the following: Global digital music market forecasts for the period 2009-14 Factors driving the demand of content delivery networks in the digital music segment Key trends prevailing in the digital music space Digital music adoption trends in major geographies including the US, UK, Japan, South Korea, France, China, India, and Brazil The content delivery strategies of iTunes and Amazon Challenges faced in digital music delivery The future of digital music delivery.

Background
The digital music market is riding on the success of mobile music and web-based music downloads, driven by the relatively recent trend towards removal of DRM technology. This growth is further spurred by the entry of mobile operators and handset vendors into the digital music domain, which are focusing on bundling their core communication packages with entertainment services. The industry has also seen growth in subscription-based services, with users paying a per month flat fee to access unlimited music. However, free advertisement supported music streams continue to dominate the market. Record companies and websites are laying greater emphasis on social media, and are providing users with the functionalities required to share their favorite music with friends. However, the industry is still struggling with its biggest threat, piracy, which continues to have a heavy impact on record companies. The future of the industry looks promising, however, with music websites investing in cloud based services to provide a seamless experience to end users. 60

Global digital music market forecasts, 200914

The global digital music market recorded growth of 10.8% in 2010 to reach $7.4bn. This was driven by 8.3% growth in online music and 8% growth in mobile music, which together constituted more than 90% of the overall digital music market in 2010. The market also saw increasing share of subscription based music services. Valued at $649m in 2010, the subscription market is expected to grow to $4.5bn by 2014. The overall digital music market is expected to reach around $16bn in 2014 from $6.6bn in 2009, reporting a CAGR of 19% over the period 2009-2014. While the online music market will grow at a CAGR of 9.5% during the period 2009-14, mobile music and subscription based services will grow at 16.7% and 59.9%, respectively, during the same period, details highlighted in the figure below:

Figure 12:

Global digital music market revenues by segment ($m), 200914

Mobile Online Subscriptions

18,000 16,000 14,000 12,000

Revenues ($m)

10,000 8,000 6,000 4,000 2,000 0 2009 2010 2011 2012 2013 2014
BUSINESS INSIGHTS

Source: Ovum

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Table 9: Global digital music market revenues by segment ($m), 200914

Revenues ($bn) Mobile Online Subscriptions Total

Source: Ovum

2009 3,007 3,247 439 6,692

2010 3,249 3,515 649 7,413

2011 3,761 3,882 924 8,567

2012 4,464 4,326 1,606 10,396

2013 5,390 4,700 2,805 12,896

2014 6,501 5,106 4,589 16,196

CAGR 16.7% 9.5% 59.9% 19.3%

BUSINESS INSIGHTS

Growth drivers
The digital music industry has recorded landmark growth as since major players such as Apple have removed DRM technology from their offering. This growth is further supported by music friendly mobile devices, and bundled offerings from telecoms operators and handset manufacturers combining both entertainment and communication. These factors have contributed to increased end-user music consumption, details of which are highlighted below.

Removal of DRM leading to increased download volumes

Removal of DRM technology has brought a radical shift in digital music demand as it provides users with the choice of listening to the downloaded music on any device. DRM-free content also supports greater compatibility of content and devices, for instance, it allows users to download music on a mobile and then sync it with a PC. The removal of DRM is increasing download volumes on music websites, thereby driving demand for content delivery services.

Increased music consumption owing to mobile capability

Easy music download options made available by devices such as the iPhone, iPod Touch, and Zune player have revolutionized the music consumption landscape. These music friendly devices provide users with enhanced features to facilitate music downloads. This is driving the digital music download market as evident 62

from the huge success of Apples iTunes Music Store, which in June 2011 reported sales of 15 billion songs since its launch in 2003. Music downloads on mobile devices are expected to grow further with the entry of handset providers and telecommunications operators in this domain, which are selling bundled offerings to customers (explained further below), including communications and entertainment services. To provide bundled services and to cater to the growing demand for digital music, these operators are making significant investments in content delivery networks and services.

Music access service bundles drives investments in content delivery platforms

The digital music retailing arena is expanding, with telecommunications operators and handset manufacturers venturing into the space. Mobile music is the most popular form of mobile entertainment and is recognized as a key factor in establishing loyalty. This is driving handset manufacturers and telcos to offer bundled services and provide both communications and entertainment services to users, leading to increased investments in content delivery platforms and technologies. For instance, Nokia launched its Comes with Music service in the UK, in which users were given a one year free music subscription with the purchase of the 5310 XpressMusic handset. The service allows users to download unlimited songs for a period of one year. Free music access provides an edge to Nokia over other subscription based music bundles offered by Verizon Wireless and Real, in which users are required to pay $15 per month for music downloads.

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Key trends
Monetization of content remains the key focus area for music websites. To target a wider subscriber base, websites remain focused on providing innovation in music delivery, offering a wide variety of music titles and including interactivity in music applications by incorporating social media. The details of the key trends prevailing in this market are highlighted below.

Increased adoption of subscription based music content download

The market for subscription based music streaming has started to show significant growth. Although this segment is yet to see mass market adoption, users have started subscribing to services which allow them to download unlimited music for a particular price. Numerous websites are cashing on this trend by launching their subscription based music services. Websites such as Napster, Rhapsody, and Zune Player are also backed by large companies such as Best Buy, Real Networks, and Microsoft, respectively. Napster offers users an option of a $5 per month package for unlimited music streaming on computers (with 5 MP3 downloads) and $15 per month package for its Napster To Go mobile product, which offers a selection of 10 million songs. Similarly, Rhapsody allows users to download their playlist on one device for $10 and on three devices for $15. Rhapsody has also launched an iPhone application, and provides access to over 9 million tracks. Consumers willingness to pay for music downloads will lead to a rise in the number of subscription based music websites, and to differentiate their offerings from competitors and to offer better user experience in terms of easy website access and quick download, content delivery services will play a significant role in this segment.

Music made available on social media

Social media is playing a key role in the distribution of music by facilitating users to post, share, and listen to music. Music websites realize the growing importance of social media and are integrating social media functionalities with their music offerings. Websites such as MySpace Music provide users with free ondemand streaming in addition to paid downloads through Amazon. It allows users to add songs in a playlist and view top songs added by friends. Similarly, Apples launch of music social network, Ping, is positioned

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as a music-focused alternative to Facebook and Twitter. While Ping allows users to share music related information and follow artists and derive more information on the music they listen, it has not seen much success since its launch. However, this scenario could change through its partnership with Twitter. Even Pandora is focusing on integrating its application with Facebook, and plans to stream music directly onto Facebook from the artists and bands that fans have liked on the Facebook interface. The increase in such music sharing applications will see a rise in demand for content delivery networks to increase speed and security.

Growing market for unlimited ad-supported free music streams

While the subscription based music delivery model is still in its nascent stage, music websites are monetizing content by providing users with ad-based free music streams. This market is growing leaps and bounds with millions of consumers using these services due to the high quality and choice of music made available to them. For instance, Sweden-based Spotify offers users free music streams in which advertisements are run after every five or six songs. While Spotify also offers subscription based on-demand music services for 10 per month, it derives 95% of its website traffic through these unpaid services. Spotify had 10 million users as of September 2010, and while it is currently operating only in Europe, it plans to launch its services in the US in H211. The company expects that this expansion will provide it with significant growth in paid subscribers. A similar ad-based model is adopted by Pandora, which offers ad-based free music downloads, in addition to subscription based services. Pandora is showing significant growth with 80 million registered users as of March 2011 up from 60 million in July 2010. Rising content volume on music websites in order to provide a wider variety of music options to users is leading to increased investments in content delivery platforms. These platforms support content download and guard against rampant music piracy.

Musicians distribute directly to end users

While initially budding artists had to depend on record companies to launch their CDs, which were then made available in retail chains, the value chain is being disrupted with the advent of numerous music websites which allow artists to upload their music. These artists are now reaching out directly to their fans through social networking sites, and are closely involved in the promotion and distribution of music. Websites such as

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TuneCore place tracks for a particular fee on various e-commerce sites for download. Similarly, SoundClick enables artists to create their own web page and stream music on it.

Trends in digital music delivery by region

US
While the physical music format is reporting a steady decline in sales in the US (more than 20% decline in CD sales in 2010), digital music is rising steadily and accounted for more than 40% of all music purchases in the US in 2010. The US is showing good adoption of online music streaming services with significant growth registered by music streaming websites Vevo and Pandora. Vevo, which was launched in December 2009, reported 43.6 million listeners in the US as of April 2010. In the paid music download segment, Apple continues to enjoy its dominant position with iTunes, followed by Amazon. Demand for music on mobile devices is growing in the country, albeit at a slow pace. In March 2010, a total of 4 million mobile subscribers downloaded music on their mobiles compared to 3.7 million in March 2009, a 10% y-o-y growth, as reported by comScore MobiLens.

Japan
The digital music market in Japan has shown steady growth, reaching 91bn (approximately $1.1bn) in value in 2009, according to Recording Industry Association of Japan (RIAJ).

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Figure 13:

Japanese digital music revenues by segment ($m), 2005-09

Mobile digital content Internet downloads Others

1,200

1,000

800

Revenues ($m)

600

400

200

0 2005 2006 2007 2008 2009

BUSINESS INSIGHTS

Source: Recording Industry Association of Japan

Table 10: Japanese digital music revenues by segment ($m), 2005-09

Revenue ($m) Mobile digital content Internet downloads Others Total

2005 397.2 22.7 1.1 421.0

2006 592.5 61.7 2.6 656.8

2007 835.4 72.8 19.0 927.2

2008 981 111 21 1112.1

2009 973.4 125.4 18.7 1117.5

CAGR 25.1% 53.3% 103.1% 27.6%

Source: Recording Industry Association of Japan

BUSINESS INSIGHTS

Mobile continues to dominate the digital music delivery ecosystem with 87% overall revenue share, whereas online downloads accounted for 11% with a value of 10.2bn ($122m) in 2009 as reported by RIAJ. 67

Figure 14:

Japanese digital music revenue share by segment, 2009

Online downloads 11% Others , 2%

Mobile digital content, 87%

Source: Recording Industry Association of Japan

BUSINESS INSIGHTS

In the mobile digital content domain, single track downloads remain predominant followed by ring tunes, and ring back tunes, and recorded 49.4bn ($604 m), 16.4bn ($200 m), and 9.8bn ($120 m) in value, respectively, in the year 2009, according to RIAJ, details highlighted in the table below.

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Table 11: Japanese digital music delivery data by segment, 2009

units('000) Online downloads Single Track Album Total audio downloads Music video Other downloads Total Mobile digital content Ringtunes 42,511 2,555 45,066 1,748 0 46,813 1,57,081

Y-o-Y basis 112% 117% 112% 111% 112% 86%

value (m) 6,540 3,126 9,665 543 0 10,209 16,426

Y-o-Y basis 111% 117% 113% 118% 113% 81%

Ringback tunes Single Track Music Video Other Mobile Total Others Subscriptions (Internet) Subscriptions (Mobile) Other Digital Music Content

1,12,021 1,42,896 7,976 1,376 4,21,349

111% 100% 82% 76% 96%

9,801 49,447 2,892 683 79,250 702 381

115% 104% 101% 114% 99% 87% 95% 94%

60

174%

440

Source: RIAJ (data derived from digital music sales of RIAJ member companies)

BUSINESS INSIGHTS

The Japanese music market is not open to DRM-free music downloads, and while DRM-free downloads are made available by Amazon Japan and iTunes Japan, it is missing mass adoption owing to lack of contribution from local record companies who believe that DRM-free music could jeopardize the rights of

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artists and their intellectual property. This also led to the closure of Napster in Japan, which started as a joint venture with Towers Records Japan with its DRM-free model. However, none of the significant Japanese labels and artists were interested in contributing to this model which led to Napster closing business in May 2010. However, EMI Music Japan has now accepted the DRM-free music download model, and is making its music available through Amazons music store as per its global policy. Another distinguishing feature in the Japanese music industry is the rivalry between Sony and Apple, driven by Apples iPod capturing the market of the traditional and very popular Sony Walkman. To stop Apple from becoming the market leader in music retail in Japan, Sony has not agreed to make its music available on iTunes Japan, while its affiliates in other countries are doing so.

UK
Digital music is growing in the UK, with revenues reaching 280m in 2009. Digital sales accounted for 20% of overall recorded music industry revenues in Q1-Q3 2010, with 99% of single tracks and 20% of albums purchased in the digital format. Details are highlighted below.

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Figure 15:

Digital formats share of music sales in the UK (%), 2004 Q310

Singles Albums

100% 90%

Digital formats % share of overall sales

80% 70% 60% 50% 40% 30% 20% 10% 0% 2004 2005 2006 2007 2008 2009 Q1-3 2010

Source: OCC

BUSINESS INSIGHTS

Table 12: Digital formats share of music sales in the UK (%), 2004 Q310

% share of overall sales Digital singles Digital albums

Source: OCC

2004 17.9%

2005 55.1%

2006 79.3% 1.8%

2007 90.1% 4.5%

2008 95.8% 7.7%

2009 98.0% 12.5%

Q1-3 2010 99.0% 19.6%

BUSINESS INSIGHTS

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Record companies are deriving significant revenues through sales of digital music driven by different business models. These include subscription based services offered by players such as Napster, single track and album downloads as made available by Apples iTunes and Amazon, and ad-based music streaming provided by the likes of Spotify and we7.

Figure 16:

Breakdown of digital revenues in the UK, 12 months ended Sept. 2010

Ad-supported, 4.8% Subscription, 6.2% Mobile, 4.6% Music video, 1.3% 45.7% 36.5% Albums

Others , 0.9%

Tracks & single bundles

Source: BPI

BUSINESS INSIGHTS

The UK provides significant opportunities for bundled music services from ISPs, and (according to an Ovum study) digital music services could potentially generate more than 100m in direct revenues for UK ISPs by 2013.

France
Digital music is showing good growth in France with sales growing by 49% in 2008, according to IFPI. However, local music releases are witnessing a decline and saw a 60% decline in the first half of 2009 when compared with the same period in 2003. There was also a 9% decline in overall investments made in marketing and promoting French music in the first half of 2009 compared to the first half of 2003 according to IFPI. However, the French government is taking several initiatives to protect the local culture and artists. Mobile continues to be the medium of choice for music downloads with 874,000 mobile subscribers downloading music directly to their handset in March 2010, a 50% y-o-y increase (according to comScore 72

MobiLens). While 21% of the French internet population listens to music on mobile (details highlighted in the table below), significant amounts of downloads are performed illegally on peer-to-peer networks.

Table 13: European mobile benchmark data (% of mobile subscribers), March 2010

EU5 Sent text message to another phone Used application (including games) Used browser Listened to music on mobile phone Accessed Social Networking Site or Blog Accessed news Smartphone 3G Subscribers
Source: comScore MobiLens

UK 90% 39% 34% 23% 21%

France 80% 26% 24% 21% 13%

Germany 81% 34% 20% 26% 9%

Italy 78% 39% 24% 21% 14%

Spain 82% 37% 23% 30% 12%

82% 35% 25% 24% 14%

11% 25% 44%

16% 25% 43%

10% 17% 39%

9% 19% 40%

12% 33% 46%

8% 31% 55%

BUSINESS INSIGHTS

To address piracy issues and to reduce illegal downloads, the French government has initiated plans to subsidize pre-paid music cards for consumers in the 12-25 age group. The government plans to offer the 50 cards for 25, subsidizing the remaining half, and is expected to invest 30-50m in this initiative. The French government is also playing a key role in protecting online intellectual property rights. In 2009, it established an administrative authority, HADOPI (Haute Autorit pour la diffusion des uvres et la protection des droits sur internet), and passed a law according to which Internet service providers (ISPs) are required to send warning notices to online copyright infringers. After issuance of two warnings to infringers by the ISP, their details are transferred to a criminal court by HADOPI, where the judge is empowered to suspend the infringers internet access for a period of one year, in addition to imposing other penalties.

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South Korea
South Korea is a unique music market, with digital music sales exceeding physical music formats. Mobile penetration exceeds 100% in the country and the mobile music market has highly lucrative potential. Telecoms operators and handset vendors are undertaking several initiatives to capture the digital music market. SK Telecom, South Koreas leading telco, has launched its mobile music portal; a monthly subscription based service called MelOn, which has made it a leading player in data revenues in the country. Piracy remains one of the key challenges in the market and to address this challenge, the Korean government (similar to the French government) has implemented a graduated response measure. According to this program, ISPs report peer-to-peer infringements on their network leading to suspension of end users internet connections for a stipulated time period. In addition, the government is also playing a key role in educating consumers by introducing copyright classes in school. These initiatives have resulted in growth of the legal digital content market in South Korea, and the overall recorded music market reported 10% growth in the first half of 2010 as reported by IFPI.

India
The Indian music industry has started witnessing a shift from the physical to digital medium, driven by the improving broadband penetration, introduction of 3G, and growing mobile subscriber base. However, physical music formats such as cassettes, CDs, and DVDs continue to retain a significant position (though with declining growth) due to demand from semi urban and rural areas. India has more than 600 million mobile subscribers, and is a key market for sales of caller tunes and ring tones followed by music. MP3 remains the most popular digital music format with users preferring single track downloads over albums. Mobile music continues to dominate over Web music, and mobile music is expected to constitute more than 85% of music sales in 2010. Piracy is the biggest threat in India as most music downloads are performed illegally, and typically transferred to other users through Bluetooth. With rising Internet know-how in India, digital music sales are bound to grow over the next five years with mobile music sales spurring this growth. Handset providers and mobile operators are taking several

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initiatives to tap the opportunity presented by the Indian digital music market. Telecom operators are offering various music based subscription packages. For example, Vodafone India is offering a subscription based package for INR 50 per month ($1.09), in which subscribers can access their music station, which provides access to 40,000 songs, and 30 music channels in nine languages.

China
China, the largest mobile market in the world with more than 850 million mobile subscribers, is one of the fastest growing markets for mobile music. Around 70% of the countrys 300 million internet users download music online although almost all illegally. The country has one of the highest music piracy rates in the world, and the IFPI claims it to be virtually 100%, so in order to garner a higher market share in the country, operators are offering free music download services to users with some monetization through advertisements. For instance, Nokia launched its Comes With Music service which provides users with DRM-free access to unlimited music on their PCs and mobiles, and allows users to download unlimited amounts of music for a year. Similarly, in 2009, Google launched its free music service in the country in collaboration with online music store Top100.cn in order to compete with the leading search engine Baidu.com, (which provides free music download functionality). Google plans to monetize this offering with advertisements, and has collaborated with music labels such as Sony Music, Warner Music, and Universal Music by sharing a part of advertising revenues with these record companies. Google is currently offering this service only in China.

Brazil
With more than 100% mobile penetration and 194 million mobile subscribers, Brazil is a growing market for digital music; and mobile is the dominant medium over online. According to the Universal Music Group, 30% of its revenues derived from Brazil are through digital sales out of which mobile contributes to 70% of revenue share. In 2010, record companies also registered a revenue growth of more than 30% from digital music sales in Brazil, as reported by IFPI.

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Brazil is a very lucrative market for smartphones with bundled music offerings, and while Nokia has suspended its Comes with Music service in 27 countries, it continues to provide it in six countries, including Brazil. Brazilians show a clear preference for local music, with more than 70% of the music consumed being produced domestically. However, music piracy remains one of the key challenges with half of active internet users accessing music illegally.

Challenges in digital music delivery

The music industry landscape is witnessing significant changes as record companies and music websites identifying innovative means to facilitate music downloads. Piracy remains the key challenge in this industry, with losses from illegal downloads running into billions of dollars.

Piracy
The ease with which music can be reproduced and redistributed is leading to a rise in music piracy, resulting in loss of revenues for major music labels and music distribution websites. To reduce peer-to-peer file sharing and illegal downloads, websites and major music labels are collaborating to provide free music downloads to users, and are earning revenues through advertisements and by providing other services such as concert ticket sales, merchandise, ringtones, etc. Although countries such as South Korea and France have started taking corrective actions against music piracy, it continues to remain a major challenge in developing and developed markets alike.

Digital music pricing

The easy and free access of music on the internet has made it difficult for record companies to decide on the price of the digital music. These companies are faced with the dilemma of how much a user can pay to download a particular song with high sound quality and at what price they will start looking for other freely available options on the Internet. Apples iTunes has moved away from the standard 99 cents per song model, now offering a range of prices depending on popularity, and 7digital offers downloads at 77 cents per song. Other companies such as Amie Street follow a completely different model, in which end users decide 76

the pricing of the song. Amie Street starts by providing a song for free and charges and escalates the song pricing depending on its popularity. Digital music pricing remains one of the major challenges in the music industry and companies are trying different pricing models to arrive at a sustainable business model.

Content delivery strategies of key digital music websites

iTunes transitions from PC software based to a cloud based service
iTunes Music Store, launched by Apple Inc. in April 2003, is the leading music download service, accounting for more than 60% of global digital music market share. iTunes, which reported its 15 billionth song download in June 2011, facilitates users to download music, music videos, movies, TV shows, and audio books. It also offers free streaming services such as audio and video podcasts, lectures and speeches from universities, museums and cultural centers. iTunes has the largest catalog of digital music, encompassing more than 10 million songs, and has proven that users are willing to pay for music if provided with user friendly download functionalities. iTunes has a differential pricing strategy for different countries with users in the US paying 99 cents and $1.29 per track download, depending on the popularity of the song. In May 2011, Apple announced its iCloud service which allows users to store and access their iTunes music, pictures, documents, etc. from multiple devices. iCloud allows users to store their content remotely, and makes it accessible wirelessly on multiple devices. While other players such as Amazon and Google have also launched their Web-based music services with Amazons Cloud Player and Googles Music Beta, iCloud will help Apple to retain its dominant position.

Amazon enters the subscription based streaming market by acquiring Amie Street
Amazon launched its online music store, Amazon MP3, in September 2007. It provides users with access to a catalog of more than 6 million songs, and commands more than a 10% share of the digital music market. Amazon has taken several initiatives to command a lead in the digital music industry such as offering songs in open MP3 format without DRM which enables users to play the songs on any device whereas Apple requires users devices to support AAC compression and MP4 file format. Amazon is also undertaking

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various promotional initiatives such as offering album downloads for $5, and daily bargains in order to increase website traffic and customer loyalty. Its latest move to acquire music sharing website Amie Street is expected to speed up Amazons entry into streaming services. Amie Street is famous for its unique pricing structure in which music is initially available for free and then the pricing is increased depending on the song popularity with highest charge being 99 cents. Amazon plans to close down Amie Streets retail operations and direct all of its web traffic on Amazon music service site. Amazon has also tied up with MySpace Music, which directs all paid music requests to Amazons website. Despite all these initiatives, what remains to be seen is the strategies which Amazon will adopt to stay competitive with iTunes and its newly launched iCloud service.

Spotify
Spotify, a Swedish firm, provides users with free music streams, in addition to subscription-based music services. According to IFPI, Spotify is the second largest source of digital music revenue for record labels in Europe, and the largest digital music retailer in Norway and Sweden with respect to usage. The company recorded strong growth in Finland in 2010 and its advertisement-based revenues from Finland grew from 785,000 in 2009 to 2.2m in 2010. The company had 10 million users in Europe as of September 2010, however, more than 95% of its website traffic is contributed by free services. To generate greater revenues for record labels, the company has started laying strong emphasis on beefing up its subscription based revenues. As such it has slashed its free music benefits from 20 hours per month to 10 hours per user, in addition to limiting users to play a track only five times per month. The company enjoys a strong presence in Europe, and finally launched its streaming services in the US in July 2011. It expects to derive more subscription based revenues from the US market.

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Pandora
Similar to Spotify, Pandora also offers ad-based free music downloads, in addition to subscription based services at $3 per month. It provides users with a choice of 90,000 artists, and claims that 80% of the music is played every month with its user base growing from 60 million in July 2010 to 80 million in March 2011. In 2010, Pandora generated $119.3m (87% of its sales) from advertising and $18.4m from subscriptions and other revenue sources. The company derives most of its growth from users demanding its service on mobile devices such as smartphones and tablets. 60% of Pandoras listening is through mobile devices, a rise of 12% compared to the last two years. However, the company reports that its streaming service is unable to find enough advertisers to buy the space created by mobile-phone users, thereby raising concerns related to monetizing its popularity.

The future of digital music delivery

Cloud based music services
The future of digital music delivery is in cloud based music services. The next few years will see greater adoption of such services, in which users do not own music but access it as a service as and when they like. For instance, with the adoption of cloud services, users will not be required to carry their music on their iPods or MP3 players, they can access their music or any other music through the cloud for a per month subscription fee. Spotify in Europe and Pandora in the US have already proved popular using this model. Sony has already launched Qriocity, its cloud based digital music service which is available in France, Germany, Italy, and Spain. Apple and Google have also started focusing on this area, and more companies will follow suit.

Rise in social music sharing websites

Social network functionalities have become an integral part of music websites, allowing closer integration with social networks such as Facebook and Twitter. This will evolve further with websites not only providing social network functionalities but also social music sharing. For example, Ping (an Apple initiative) is a social network for music which allows users to share music and related information, follow artists, and find 79

information on live performances. Similar launches and tie-ups with dominant social networks will serve to make digital music even more widespread than it currently is.

Figure 17:

Snapshot of Ping social network for music

Source: Apple

BUSINESS INSIGHTS

Streaming services offered by e-commerce websites

Many music streaming websites follow a dual model in which they provide on-demand paid streaming service to users and they direct users to e-commerce websites such as Amazon and iTunes for music purchases. The convergence of this model with e-commerce websites focusing on music streaming services is set to continue, as reflected by the acquisition of Lala by Apple. Lala, which charged 10 cents per music stream, claims that a customer spends an average of $67 on Lala music (as reported by CEO Bill Nguyen in October 2009). Owing to the accelerating growth of paid on-demand streaming services, it is likely that other e-commerce sites will focus on this segment.

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Chapter 5 Video Gaming delivery

Summary
The global video gaming market recorded growth of 1.1% in 2010 to reach a value of $73bn, driven by 5.8% growth in the gaming software segment, which reached $53bn in 2010. The value of the video gaming market is expected to reach $92.5bn in 2014, compared to $72.2bn in 2009, reporting a CAGR of 5.1% during the period. Console gaming will continue to be the largest segment in the video gaming market but its share is expected to decline from 55% in 2009 to 45% in 2014. The share of online gaming in the total video gaming market is expected to increase from 26% in 2009 to 36% in 2014, while that of mobile gaming is expected to increase from 9% in 2009 to 13% in 2014. The importance of providing an uninterrupted gaming experience to users drives investments in content delivery networks. Social gaming is becoming a significant market in developed and developing economies alike. South Korea, known for its compulsive gamers, is witnessing rising gaming addiction in the country. India is seeing rising adoption of mobile gaming whereas console based gaming remains dominant in China. Piracy and long game development cycles are the key challenges in the gaming industry. Console gaming companies such as Sony are focusing on providing users with online functionalities, including social gaming. The market for virtual gaming goods is on a rise with social gaming companies such as Zygna deriving revenues from sales of virtual goods to gamers.

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In the near future, there will be increased adoption of cloud storage and Massive Multiplayer Online Role Playing Games (MMORPG), which are already very popular in South Korea and China.

Introduction
This chapter elaborates on the trends prevailing in the video gaming sector, with market forecasts to 2014. It further elaborates on the following: Factors driving the demand of content delivery networks in the video gaming sector Key trends prevailing in the gaming sector Video gaming trends in geographies such as US, UK, Japan, South Korea, France, China, India, and Brazil Content delivery strategies of Sony PS3 and Zygna Challenges faced in the gaming industry The future of video gaming.

Background
The video gaming market is experiencing a transition from the traditional console based gaming to online and mobile gaming. While console based gaming still holds a dominant position globally, its share is gradually declining due to increase in preference for web and mobile based gaming. The market is also seeing the rising adoption of social gaming and massively multiplayer online games, which is contributing to the growth in the gaming sector.

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Global video gaming forecasts, 200914

The global video gaming market recorded growth of 1.1% in 2010 to reach a value of $73bn. This was driven by 5.8% growth in the gaming software segment, which reached $53bn in 2010 with gaming hardware including gaming consoles and handhelds recording a 9.5% decline to hit $20bn in the same year. While gaming software is expected to continue its growth momentum, growing by 5.2% in 2011, gaming hardware will see a further decline in market share. The video gaming market is expected to reach $92.5bn in 2014 compared to $72.2bn in 2009, reporting a CAGR of 5.1% during the period. The gaming software segment will report a CAGR of 7% during 2009-2014 whereas gaming hardware will grow only by .2% during the same period. Details are highlighted in the figure below.

Figure 18:

Global video gaming revenues ($bn), 200914

Total hardware (Consoles/handhelds) Total software

100 90 80 70

Revenues ($bn)

60 50 40 30 20 10 0 2009 2010 2011 2012 2013 2014

Source: Business Insights

BUSINESS INSIGHTS

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Table 14: Global video gaming revenues ($bn), 200914

Revenues ($bn) Total software Total hardware (consoles / handhelds) Video gaming total
Source: Business Insights

2009 50.1 22.1

2010 53.0 20.0

2011 55.8 17.2

2012 60.3 19.1

2013 65.1 21.3

2014 70.2 22.3

CAGR 7.0% 0.2%

72.2

73.0

73.0

79.4

86.4

92.5

5.1%

BUSINESS INSIGHTS

Online and mobile gaming are key drivers of the growth in the global video gaming market. Console gaming, while still in the dominant position, will witness slow growth. PC gaming is also set to see a decline in growth. Console gaming will continue to be the largest segment in the video gaming market, but its share will decline from 55% in 2009 to 45% in 2014. The share of online gaming in the total video gaming market is expected to increase from 26% in 2009 to 36% in 2014, while that of mobile gaming is expected to increase from 9% in 2009 to 13% in 2014. The share of PC gaming is expected to decline from 9% in 2009 to 6% in 2014.

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Figure 19:

Global video gaming software revenues by segment ($bn), 2009-14

80 70 60

Mobile

PC

Online

Console/handheld

Revenues ($bn)

50 40 30 20 10 0 2009 2010 2011 2012 2013 2014

Source: Business Insights

BUSINESS INSIGHTS

Table 15: Global video gaming software revenues by segment ($bn), 2009-14

Revenues ($bn) Console / handheld Online PC Mobile Total software

Source: Business Insights

2009 27.8 13.2 4.5 4.6 50.1

2010 28.6 14.6 4.4 5.4 53.0

2011 29.2 16.4 4.4 5.8 55.8

2012 30.2 19.2 4.4 6.5 60.3

2013 31.2 22.6 4.3 7.0 65.1

2014 31.6 25.3 4.3 9.0 70.2

CAGR 2.6% 13.9% -0.9% 14.4% 7.0%

BUSINESS INSIGHTS

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Growth drivers
The gaming industry is a key investor in content delivery services due to the importance of providing an uninterrupted gaming experience to users. These services have also become integral to providing gaming services across multiple devices.

Seamless gaming experience on mobile

With improving mobile phone sales and increasing 3G penetration, consumers expect enhanced media services such as gaming on their mobile devices. This market presents significant opportunities, with mobile gaming revenues expected to reach $9bn in 2014. In this competitive scenario, it has become imperative for publishers to provide a jitter-free gaming experience to users and maintain the continuity of high definition streams; which has driven focus towards content delivery networks and services.

The rise of online gaming

The rising popularity of online games is leading to investments in content delivery platforms, placing hosting infrastructure in multiple countries in order to provide a seamless experience to gamers around the world. Online games including massively multiplayer online games (MMOG) and free-to-play casual games are gaining popularity. They provide online gamers with a platform to interact and play with a number of other gamers in a virtual gaming world, driving publishers to invest in content delivery platforms. Although MMOG has a very established market in China and South Korea, it is increasingly gaining popularity in other developing nations, leading to increased focus on content delivery services.

Mobile-to-console integration
The rising integration between mobile devices and gaming consoles is an upcoming market for content delivery service providers. While initially mobile gaming was a competitor to console based gaming and vice versa, they are now integrating to broaden the gaming experience. For instance, ilomilo was launched both on Windows Phone 7 and Xbox Live Arcade. The game allows some integration between the mobile device and the console; whenever a user scores while playing on their mobile, the points get included on their console Gamerscore.

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While mobile to console integration is still in its nascent stages, we expect it to grow in the near future with more advanced integration, making the role of content delivery services even more important.

Key Trends
There is a high level of innovation on show in the gaming industry, in terms of expanding audiences and also technological advances. Social gaming and user generated content targets new demographic groups, while advances in motion sensor technology are providing a new, physically interactive gaming experience.

Social gaming
Social gaming, referred to as games which involve interactive elements and which can be played with other users, is showing excellent growth potential; valued at $1.5bn in 2010, it is expected to hit $4bn by 2015.T his sector is gaining popularity due to the integration of gaming within social networks, allowing users to play games with family and friends. Analysis in the Business Insights report The Future of Social Gaming (published Jan. 2011) shows social gaming is also breaking out of the core young user demographic, with older people in the 30-59 age brackets playing social games over-represented in terms of overall population size. Details are highlighted in the figure below.

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Figure 20:

Global number of online social gamers by age group (% population), 2010

% of overall population % of global social gaming population Total number of social gamers

35% 30% 25%

120 100 80

20% 60 15% 40 10% 5% 0% 0-18 18-21 22-29 30-39 Age group 40-49 50-59 60+ 20 0

Source: Business Insights

BUSINESS INSIGHTS

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Total number of social gamers (m)

% of population

Table 16: Global number of online social gamers by age group (% population), 2010

Age group 0-18 18-21 22-29 30-39 40-49 50-59 60+

% of overall population 31% 5% 14% 15% 13% 10% 12%

% of global social gaming population 20% 6% 15% 19% 16% 15% 10%

Total number of social gamers (m) 114 32 86 108 89 84 56

Source: Business Insights

BUSINESS INSIGHTS

Although the market is populated by numerous gaming developers, Zynga is the leading social gaming companies with estimated revenues of $850m in 2010 and approximately 250 million users. To tap the opportunities present in this market, Apple is also launching its Game Center, a social gaming platform for iPod Touch, iPad, and iPhone. The Game Center will facilitate users to invite friends to play a game and conduct score comparisons. Social gaming is also presenting significant monetization opportunities through sales of virtual goods, and is seeing huge investments by brand marketers who are leveraging this high growth platform in order to advertise their products and services.

User generated gaming content

User generated gaming is gaining traction, and developers increasingly provide users with tools to create their own content. This allows users to give their input to design new game features, create or customize characters, and add new levels to the game. For instance, EA Games has launched EA Create, a puzzle game, which allows users to create their own custom levels. Gaming companies are investing in user 89

generated gaming options to provide them with a higher level of personalization, thereby increasing their involvement with a particular game.

Motion sensor gaming

Games involving motion sensors are proving popular, as they provide a novel experience gamers interact physically by moving around, rather than solely through a control pad. The Nintendo Wii started the craze, but it has since been overtaken by competitors Microsoft and Sony. Launched in November 2010, Microsofts Xbox Kinect provides a controller-free gaming experience, with the sensor recognizing full body movements in order to play. The Xbox add-on has proved extremely popular, becoming the fastest selling consumer electronics device ever as it shipped 8 million units within 60 days of launch and topped 10 million by March 2011. Sony, meanwhile, launched the Move controller to enhance the PlayStation 3 (PS3) console. Similar in concept to the Wii wand controller, it is seen to be more advanced and can cope with the high performance of the PS3. Launched in September 2010, it had shipped 8.8 million units as of June 2011. As gaming software developers catch up to the capabilities offered by this hardware, these devices are expected to drive the market even further. They are also capable of performing multimedia functions and social interaction services, so will continue to open the market towards new demographic groups outside the young male hardcore gamer segment.

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Trends in video gaming delivery by region

US
The US is one of the largest and most developed gaming markets globally, with estimated gaming spend valued at $24.7bn in 2010. Online gaming dominates the US market with growth driven by social gaming, massively multiplayer online games, and casual game portals. Console-based gaming, while continuing to hold a significant position in the country, is losing its domination. The details of the breakdown of gaming spend in the US are illustrated below.

Figure 21:

Gaming spend in the US, 2009 vs. 2010

Gaming spend 2009 Gaming spend 2010 PC / Mac boxed Social networks 9% 17% PC / Mac download Consoles , 59% Game portals 6% 10%

PC games

Game portals

12% 8% 15% 11%

Consoles 43%

MMOs

Mobile, 4%

MMOs

Mobile, 6%
BUSINESS INSIGHTS

Source: Newzoo Games

Social gaming is showing rapid growth, leading to a new market opportunity in virtual goods sales and ingame adverts. As shown in Business Insights report The Future of Social Gaming, social gaming revenues in the US were $670m in 2010, are expected to reach $754m in 2011, and almost $1.2bn by 2015. The country is also seeing a rise in the adoption of branded virtual goods (such as hip hop artist Snopp Doggs line of branded virtual goods available on online stores, WeeWorld and Zwinky), a new trend which is expected to develop further in the coming years. 91

Japan
While many popular console games such as Nintendos Mario franchise and Sonys Gran Turismo originated in Japan, the Japanese share in the overall global video gaming market is declining. According to the Entertainment Software Association and the Japan External Trade Organization, Japans share of the world video gaming market shrunk from 50% in 2002 to less than 10% in 2009. However, console based gaming remains dominated by Japan, with two of the three leading console manufacturers (Nintendo and Sony) based there. Both continue to focus on innovation; Nintendo launched its 3D portable console, the 3DS, and is also set to launch the next generation Wii in late 2011 / early 2012; while Sony has introduced the Move controller for its PS3 and has helped to develop highly innovative and advanced games such as Heavy Rain and LA Noire. Social gaming is an upcoming growth area and in 2009 more than 40 million Japanese users spent approximately $500m on buying virtual goods on social gaming platforms. Mobile phones remain the preferred medium for social gaming, and leading social networking sites such as Mobage Town and Gree are popular mobile phone gaming platforms in Japan. According to developer and publisher Capcom, mobile gaming is a $1bn business in Japan. Devices such as the iPhone and iPad are gaining popularity in the country, and Apple has explicitly started promoting its various mobile devices as gaming devices. While gaming has a huge market in Japan, people still prefer local gaming content with little preference for western games.

UK
The games market in the UK is dominated by console based gaming, and while it holds a dominant position in the country, its overall share is shrinking: It accounted for 49% of the market in 2010 compared to 63% in 2009.

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Figure 22:

Gaming spend in the UK, 2009 vs. 2010

Gaming spend 2009 Gaming spend 2010

PC games Games Social networks 4% PC Games downloads Consoles , 63% Game portals 8% 11% 7% MMOs Mobile
Source: Newzoo Games
BUSINESS INSIGHTS

14%

PC 20% Game portals 7% 5% MMOs 5%

Consoles , 49%

Mobile

7%

The UK is a growing market for mobile based gaming and social gaming, and this opportunity is being exploited by leading mobile operators in the country. In 2010, Orange UK launched Playtomo, a 5 per month subscription based gaming service, which allows subscribers to play games on their mobile devices, and share with their friends through social networks. The UK is a comparatively bigger market with respect to gamers who have played games on mobile compared to the US, and according to a survey conducted by casual games publisher PopCap, out of 2400 mobile phone owners surveyed in the US and UK, 73% of respondents in the UK had played a mobile game at least once compared to 44% in the US. The UK government is also considering introducing a $63m annual tax break for the gaming industry which is expected to encourage US companies to set up shop in the UK. The tax break is expected to provide the country with the required impetus for further growth in the gaming sector.

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France
Console-based gaming is the dominant gaming medium in France, followed by PC games and games portals. France has a total of 25.4 million gamers and the gaming market was valued at 3.5bn in 2009-10 as reported by Newzoo Games. The bifurcation of the gaming market according to different gaming mediums is highlighted in the figure below.

Figure 23:

Total money spent per gaming platform in France (m), 2009-10

3000

2500

2430

Spend on gaming platforms (m)

2000

1500

1000 690 500 190 0 Consoles PC games Game portals Mobile devices MMOs 100 160

Source: Newzoo Games

BUSINESS INSIGHTS

The most important recent development in the French gaming industry is the liberalization of the online gaambling segment. In June 2010, France opened up its online gambling market by issuing 17 licenses to 11 operators for online gambling, thereby ending the states 471 year long monopoly. The license now allows operators to manage betting on horse racing, organized sports events, and games such as poker. The change in this regulation has started to attract numerous investors to France. While French based gaming sites use virtual money for prizes, companies are hoping that with this regulation real money will flow in. 94

This regulation is also expected to drive the social gaming landscape in the country, and is seeing launch of several sports betting sites such as Beterz, which allows users to challenge each other and bet on games such as football, boxing, and Formula 1. In addition, these sites also offer a forum, and social networking functionalities.

South Korea
South Korea has one of the most connected populations in the world, and is known for its compulsive gamers with one in every 10 Internet users in the country expected to be a gamer. South Korea has a very established online gaming market and this market is expected to exceed $2bn in revenues in 2011 (according to Pearl Research). Massive Multiplayer Online Role Playing Games are very popular, played by millions of gamers in the country. The addiction for gaming is widespread in the country which has resulted in several gaming related tragedies such as death and murders, and according to psychologists approximately 10% of Korean school children have demonstrated signs of video game addiction. As a result, the Ministry of Culture, Sports and Tourism has declared a ban on three of the most popular games (Barameui Nara, MapleStory, and Mabinogi) in the country, and according to the ban, gamers below 18 years of age will be blocked from gaming between midnight-8am. In addition, the government is also implementing a slowdown policy, in which the internet speeds of underage users will reduce after they have logged in for several straight hours. South Korea is also one of the leading destinations for mobile gaming, and this market is showing good growth owing to the availability of the latest technologically advanced handsets with high speed processors and 3D technologies, flat rate tariffs offered by operators for downloading games, and advanced data transmission technologies, which is encouraging users to adopt mobile data services, including gaming.

India
The gaming industry in India is showing good growth due to the rise in broadband penetration, increasing numbers of casual gamers, and availability of localized content. According to a FICCI-KPMG report, the gaming industry in India grew by 22% in 2009, and is expected to grow at a CAGR of 32% in the period 2009-14 to reach $711m (INR 32bn) by 2014. Mobile gaming dominates the industry with its current 50-60% 95

share owing to the increasing mobile subscriber base (approximately 600 million mobile subscribers) and launch of 3G services. Social gaming is one of the most significant trends in the country and leading Indian gaming companies, Zapak, ibibo, and Indiagames, are laying strong emphasis on incorporating social elements into their games. Social gaming has a huge potential in India driven by casual gamers looking at socializing through some casual and fun games. According to Deepak Abbot, VP of Zapak, more than 10 million Facebook users in India play social games, which is approximately 50% of Facebooks user base in India. Gaming in India is typically associated with the younger population in the 18-34 age bracket, and is gaining traction owing to localized gaming content launched by companies. For instance, Indiagames launched its social game, t20fever.com in partnership with the Indian Premium League (IPL) to cash on the cricket fever in the country. The key challenge in the country remains a thriving grey market and high custom duty on gaming consoles. According to a study by the Internet & Mobile Association of India (IAMAI) and IMRB International, the approximately 25% custom duty on gaming consoles makes it expensive for users and drives grey market sales which bypass duties and taxes. Another driving factor for piracy is the late launch of games in India compared to other developed markets, which drives the circulation of pirated games in the country.

China
Online gaming, which is still picking up in other developing economies, is a very well established market in China. China had 68 million online gamers in 2009, and this number is expected to grow to 141 million by 2014, according to Niko Partners. In addition, the online gaming market is expected to reach $9.2bn by 2014, driven by the growing market for gaming on social networking sites and expanding infrastructure. The growing preference for social gaming is also leading to the decline of MMOG in the country, which has reached saturation. China is also a very lucrative destination for selling virtual goods required to progress in a game.

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While online gaming has significant growth potential in the country, the market is still dominated by console based gaming. According to China Software Industry Association (CSIA), out of the $8bn revenues earned by the Chinese gaming industry in 2008, console based gaming contributed to more than half of it. This is the case even though console based gaming is banned in China, with only Nintendo DS allowed to legally sell consoles in the country. However, most of it is only on paper with gaming consoles easily procurable from the black market. People in China also source games and other peripherals from the black market, and Sonys PS2 is one of the most popular non-handheld console sold in the black market as there is a huge library of pirated PS2 gaming CDs already available in China. While there are talks on lifting the existing ban on gaming consoles, companies such as Sony and Microsoft will continue to lose from the widespread pirated gaming market in the country.

Brazil
Console based gaming is in its nascent stages in Brazil due to the inflated hardware and software prices. The high tax rates prevailing in the country has made games and gaming consoles very expensive, somewhere between one and a half to twice the price of gaming consoles in the US, and this has massively contributed to game piracy. For instance, in the legal Brazilian market, a PS3 costs $1130 and an Xbox 360 sells at $1000-$1600, and a game might be available for $140-150, which makes the whole gaming experience a very expensive proposition. Online gaming has huge potential in the country, as seen by the popularity of MMOG. While the market for MMO gaming on legitimate servers is small, a huge number of MMO gamers are active on pirate servers. Social gaming is an upcoming trend in the country. Vostu is the leading social gaming company with 20 million active players per month (in 2010). There is also a growing market for virtual goods in Brazil and Vostu claims to earn the majority of its revenues (expected in the double digit million dollar range) from the sale of virtual currency. Vostu leverages the leading social networking platform in the country, Orkut, which has 50 million users.

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While Brazil is demonstrating good potential for growth in the gaming sector, most of it cant be monetized by game publishers due to very widespread piracy, and this scenario can only improve with a reduction in the current tax rates imposed on such goods.

Challenges in gaming delivery

Piracy continues to be the biggest challenge for the gaming industry, resulting in significant losses for game publishers. Another significant challenge is the long development cycle associated with high-end games which has resulted in shrinking profits for publishers. Details of these challenges are highlighted below.

Piracy
Piracy is widespread in console based games owing to pirated games being made available on Flashcards. Because of this, handheld systems such as Sonys PSP and the Nintendo DS continue to suffer huge losses. Piracy remains a serious concern even in the PC gaming sector as users can easily download pirated copies of games through websites such as BitTorrent, and this has further aggravated with the launch of DRM-free gaming. Piracy is one of the biggest inhibitors of video gaming market growth, especially in parts of Asia, Latin America, and Eastern Europe. According to the Entertainment Software Association (ESA), 54% of global video gaming piracy is contributed by five countries (France, Spain, Italy, Brazil, and China) in 2010, driven primarily by peer-to-peer sharing. Several efforts have been made by developers to curb piracy such as improving their current DRM systems and launching hard to replicate products. However, piracy is a deep rooted problem, especially in some of the developing markets, and will continue to be a challenge to the gaming sector.

Long development cycle impacts profitability

Most high-end games have a long development cycle, which makes game development risky with respect to profitability. Games with longer development cycles have a higher profitability threshold compared to other typical games. Games can take up to six years to develop, and such long periods results in gamers losing interest. To overcome this challenge, game publishers need to streamline their development processes to achieve the required profit levels. 98

Content delivery strategies followed by key gaming companies

Console based gaming Sony PS3
Sonys PS3 competes closely with Microsofts Xbox 360 and Nintendos Wii. Launched as one of the most expensive console based games in 2006, PS3 lost market share to its less expensive competitors. As a result, Sony launched a cheaper and slimmer version of PS3 in 2009, branded as PlayStation 3 Slim, to stay competitive and to make up for the lost market share. Sony provides its PS3 with an integrated Blu-ray player, and positions it as an integrated entertainment device. Along with its console based offering, Sony also provides users with online functionalities such as web surfing, free game downloads, chat, movie, and game trailer download. In 2009, Sony also launched its social gaming environment on PlayStation Home called Sodium. This social gaming environment allows MMOG, and is a move to capture a share of the social gaming market. With respect to content delivery on the PlayStation platform, Sony is planning to follow a shared strategy between physical media such as disc based content and digitally downloadable media. This strategy is expected to provide users with access to the physical media which they are accustomed to using and also get access to digital media which is expected to grow at a rapid pace in the coming years. Sony has also launched its premium paid PlayStation Network (PSN) service which is made available along with its current freely available PSN (an interactive environment to play online games). For $6 per month, the premium PSN provides users with discounts on games and downloads, and automatically installs updates on update and patches. It is also speculated that Google TV will be made available on PS3, which is expected to give Sony an edge over the competition, and will help in seamless integration between devices such as consoles and mobile phones; Googles Android operating system is already running on Sonys smartphones. In January 2011, Sony launched a 3G enabled handheld gaming device in order to compete with Nintendos DS and to fend off competition from smartphones and tablets.

99

Sony has been very proactive in reducing hacking of its PS3 and has blocked access to the PlayStation network through DNS or Proxy hacks, which was expected to provide PS3 with the required security. However, the PSN hack in May 2011 was a major embarrassment for the company, costing it an estimated $171m with the threat of exposing the personal details of 77 million PlayStation users to the hackers.

Zynga exemplifies the rise of social gaming

Zynga is known for developing popular social games such as Farmville, Mafia Wars, and Frontierville, and is diversifying its product offerings by venturing into mobile gaming through its acquisition of Flock. Zynga is on an acquisition spree and has made seven acquisitions since May 2010, also including Chinese studio XPD Media, US music game developer Conduit, German HTML5 developer Dextrose, and Texan PC gaming studio Bonfire. As of March 2011, Zynga had 148 million unique users across all its games and applications, and while initially its games were only available on social networking sites such as Facebook, MySpace, and Twitter, users are now also able to access its games via its own website. Zynga derives its revenues through sale of virtual social goods, and in 2009 the company claimed that in a particular three week period users spent $854,000 on only one type of Farmville seed. The high growth potential presented by the company has led to a $100m investment by Google, with speculation that Zygna could be the cornerstone of a new Google gaming platform expected to launch in 2011. Companies like Zygna present a huge market for content delivery network providers owing to the huge traffic management required on these online gaming vendor sites, in addition to the required level of performance and scalability. As these gaming vendors are now also targeting multiple platforms such as web and mobile, content delivery service investments have become imperative.

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The future of gaming delivery

Cloud based gaming streams
Cloud based delivery is another upcoming trend as it allows users to stream console quality video games on their PC or TV with the help of an internet connection and a USB gamepad. This service is made available by a few players including OnLive, which leverages the cloud based delivery methodology to provide a gaming experience to users at affordable prices when compared with gaming consoles. In addition to its currently available PC functionality, it provides users with a MicroConsole (with gamepad) priced at $99 which allows users to access OnLive through the TV set. It also offers users unlimited gaming for $10 per month. Considering the potential in cloud based delivery services, mobile technology developer HTC plans to invest $40m in OnLive, which could expedite OnLives entry in mobile platforms. Cloud based delivery is the future of gaming, and is expected to gain momentum in the near future.

Massive Multiplayer Online Role Playing Games (MMORPG)

Massive Multiplayer Online Role Playing Games (MMORPG), which allow a large number of online players to play together against each other, is expected to show good growth in the coming years. This genre of role playing gaming provides users with greater interactivity and does not limit users to a particular environment like in other console based games. It provides greater interactivity as users can chat with fellow players over the internet, write reviews about the game, and integrate social networking functionalities. Currently hugely popular in countries such as South Korea and China, MMORPG is expected to pick up pace in other markets in the coming years.

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Chapter 6 eBooks delivery

Summary
The global eBooks market is expected to record a CAGR of 46.4% during 2009-14, with revenues rising from $880m to $5.9bn. The eBooks market in the US is expected to overtake Japan in 2011, with sales of over $1.2bn. eBook websites are focusing on making an increased number of titles available in an electronic format, along with enhanced consumer experience through integrated stores. Innovation in eReaders and other devices such as smartphones and tablets are contributing to the expansion of the digital books market. The eBooks market in Europe still struggling with different book formats such as PDF and ePUB being offered by different publishers. The eBooks market in the US accounted for $245m in 2009 and is expected to grow to $3.4bn by 2014, at a CAGR of 69.5% over the period. The eBooks market in Japan accounted for $630m in 2009 and is expected to grow to $1.37bn by 2014, at a CAGR of 16.9% over the period. Unfavorable tax policies remain one of the key challenges to eBook adoption. Google is leveraging its digitization program and advanced search algorithms, allowing users to search text across electronic books. In future, eBooks will see an increased focus on portability across multiple media, formats, and platforms.

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Introduction
This chapter elaborates on the trends prevailing in the digital books sector, with market forecasts to 2014. It further elaborates on the following: Factors driving the demand of content delivery networks in the eBooks sector Key trends prevailing in the eBooks sector Trends in geographies including the US, UK, Japan, South Korea, France, China, India, and Brazil Amazon and Googles content delivery strategies Challenges faced by the eBooks industry The future of eBooks.

Background
The digital books market has been growing rapidly, taking away market share from traditional paper books. Strong growth prospects have seen players across the digital book value chain encompassing publishers, internet bookstores, and eReader manufacturers to realign business strategies to gain market share in this fast growing market. Key players are betting on new generations of eReaders with advanced software, enabling new features that improve readability and access thereby resulting in increased adoption of eBooks. A fundamental shift is underway which is forcing book publishers to rethink their strategy and market position as content providers in the future, and not just as suppliers of physical books. As a result, content delivery is gaining significant importance even though it is still only in its early stages in countries other than the US and Japan. Over the medium term, the market is expected to be driven by the extent to which it can attract non-book readers and make the mass market shift towards digital platforms through advanced features, new formats, and enriched books.

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Global eBooks market forecasts, 200914

The global eBooks market is expected to record CAGR of 46.4% during 2009-14, reaching a market size of $5.9bn compared to $880m in 2009. The US eBook market has witnessed exponential growth in recent years, driven by the increasing popularity of Amazons Kindle. Reflecting a fundamental shift, Amazon sold on average 154 eBooks for every 100 printed books by July 2010. The Japanese eBook market continues to grow, although the growth rate has slowed down. The market in Japan posted an increase of 19% in 2010 over 2009 and is expected to record a CAGR of 16.9% during 2009-14. Meanwhile, the European digital book market is gaining momentum, driven by increased sales in the UK and Germany. Market dynamics are changing rapidly with exponential growth in the US. The US eBooks market size is expected to be significantly ahead of Japan in 2011, with revenues of over $1.2bn.

Figure 24:

Global eBooks revenues ($m), 2009-14

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0 2009 2010 2011 2012 2013 2014

Source: Business Insights

BUSINESS INSIGHTS

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Table 17: Global eBooks revenues ($m), 2009-14

2009 Revenues ($m) Growth rate (%)

Source: Business Insights

2010 1,462.0 66.0%

2011 2,306.1 57.7%

2012 3,512.9 52.3%

2013 4,686.7 33.4%

2014 5,918.6 26.3%

CAGR 46.4%

880.7

BUSINESS INSIGHTS

Drivers
The eBooks market is being driven by rising innovation in electronic reading devices, reducing prices, increasing numbers of available titles, and integrated stores.

Aggressive pricing, integrated store experience, and more titles

At a broad level, there are three key drivers for the digital books market, especially in the US. Key players have been focusing on making increased numbers of titles available in an electronic format, along with enhanced consumer experience through integrated eReader devices and online stores, which is leading to impulse buying. Along with aggressive pricing strategies being adopted by players such as Amazon, this is enabling a fundamental shift in the eBook reading mass market. In addition, increased competition and falling prices of components has led to more sophisticated eReaders being launched at reduced prices. The reasons behind the price cuts include the entry of Apples iPad and increased competition between Amazon and Barnes & Noble.

Innovation in eReaders expanding scope of content delivery

Latest versions of eReaders and other devices such as smartphones and iPads are taking the digital book reading experience to a new level. This has resulted in the expansion of the digital books market. The arrival of the iPad has revitalized the eReader market as it puts the spotlight on the key differentiating factors between the new multifunction tablet computers and the conventional eReaders.

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Many existing eReader devices lack capability to display video. However, this is changing rapidly. eReaders are acquiring better sophistication and soon many are likely to have color screens and higher definition displays. Prime View, the eInk display manufacturer and the US chipmaker Qualcomm are working on color screens. A display technology being developed by Qualcomm can show video and animation in color, and requires lesser power. In addition, there is an increased focused on software applications. New applications are enhancing the overall user experience, leading to increased adoption of digital platforms.

Key Trends
To stay competitive in the growing eBooks market, companies such as Amazon are launching multiple applications to differentiate their offerings from competitors. In addition, publishers are increasingly getting involved in the content delivery process. Details of these trends are highlighted below.

Publishers getting involved in content delivery

In one of the emerging competitive strategies in the digital books market, publishers have started exploring the business model which allows them to distribute content themselves on their own digital platforms or shared platforms. This trend was highlighted in July 2010 by a joint venture established by the Bertelsmann Group and Holtzbrinck publishing groups to distribute eBooks in Germany. Especially in Europe such tie-ups are likely to increase, creating new business model for publishers, with new roles and opportunities.

Multiple application strategy working in the US but Europe needs to catch up

In the US, the eBook format allows consumers to read on multiple devices without making any changes to the format. This strategy has been successful in enhancing consumer experience and a key factor in driving market share of eBooks. However, in Europe, the market hasnt matured to this extent, resulting in different file formats from various publishers. Currently, PDF and ePUB are the most widely used eBook file formats. Amazon uses the AZW format, which has been developed by its subsidiary, Mobipocket. AZW is similar to ePUB but offers copyright protection and DRM.

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Europe is still in nascent stage though there are early signs of digital books adoption
Publishers in Europe are yet to realize that the emerging digital publishing industry is a progressive step. They still consider digital publishing as a regressive step that is filled with more risks than opportunities. While their American peers are actively developing the eBooks market, European publishers are apprehensive about the high costs and the possibility of losing sales of print books. However, a shift is underway with the concept gaining popularity is the UK and being considered in other markets such as Germany and Netherlands.

Trends in eBook delivery by region

US
The eBooks market in the US generated $245m in revenues in 2009 and is expected to grow to $3.4bn by 2014, at a CAGR of 69.5% over the period. The market grew by over 150% in 2010, with the eBooks market valued at $625m in 2010.

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Figure 25:

US eBooks revenues ($m), 2009-14

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2009 2010 2011 2012 2013 2014

Source: Business Insights

Revenues ($m)

BUSINESS INSIGHTS

Table 18: US eBooks revenues ($m), 2009-14

2009 Revenues ($m) Growth rate (%)

Source: Business Insights

2010 625.3 155.5%

2011 1,218.7 94.9%

2012 2,028.9 66.5%

2013 2,742.3 35.2%

2014 3,423.7 24.8%

CAGR 69.5%

244.7

BUSINESS INSIGHTS

The US is one of the largest markets for eBooks and shows promising growth prospects with the rising sales of eReaders in the country. Affordability, ease of download and readability continue to be the key factors driving the sales of eBooks sales. Amazon claims to dominate the eBooks market in the US, followed by 108

Barnes and Noble (B&N) and Apple. B&N also claims to sell twice the number of eBooks compared to physical books in any format from its online store. Google also launched its eBooks in the US in 2010 with a cloud based storage platform, and downloadable applications for Android and Apple devices. The US is a relatively developed eBooks market compared to Europe as companies such as Amazon, Barnes& Noble, and Apple in the US allow users to leverage multiple devices to read the purchased eBooks, thereby mitigating the issue related to different file formats such as PDF and ePUB.

Japan
The eBooks market in Japan generated revenues of $630m in 2009 and is expected to grow to $1.37bn by 2014, at a CAGR of 16.9% over the period. The market grew by over 19% in 2010 to a value of $751m.

Figure 26:
1,600 1,400 1,200
Revenues ($m)

Japanese eBooks revenues ($m), 2009-14

1,000 800 600 400 200 0 2009 2010 2011 2012 2013 2014
BUSINESS INSIGHTS

Source: Business Insights

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Table 19: Japanese eBooks revenues ($m), 2009-14

2009 Revenues ($m) Growth rate (%)

Source: Business Insights

2010 750.7 19.3%

2011 885.8 18.0%

2012 1,026.6 15.9%

2013 1,188.2 15.8%

2014 1,372.4 15.5%

CAGR 16.9%

629.5

BUSINESS INSIGHTS

The eBooks market in Japan is showing good growth with current sale of digital books dominated by comics, which are typically read on mobile devices. In Japan, comics are available across a wide genre ranging from business to pleasure, and are read by people across various age groups. One of the challenges in the Japanese eBooks market is the significant resistance from top publishers, which are not willing to provide content. eBooks provide heavy discounts to users and as such are a direct threat to these publishers profit margins, which is causing this rift. This scenario also led to the shutdown of Sony and Panasonics eReaders initiative in 2007, with Sony offering only 10,000 titles due to lack of content from local publishers. The eBooks market is expected to grow in the near future due to the launch of bigger and better terminals such as Apples iPad, and the Japanese language eReaders to be launched by Amazon and Sony. Sony hopes to sell 300,000 readers in the first year. However, any serious growth is significantly related to the local publishers position; major growth will only occur if there are enough benefits for the publisher to digitize books.

UK
The UK eBooks market, which was lagging behind the US in terms of eBooks content and device availability, is witnessing a change now with devices such as Amazons Kindle, Sony Reader, and Apples iPad gaining market share. The country now also benefits with respect to the number of English language titles available

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in the electronic books format; the Kindle makes available more than 200,000 English eBooks in addition to 85 international and US newspapers and magazines. The Kindle continues to be the most popular e-reader in the country with 3.5 million adults in the UK owning one in 2010, followed by Sony with 2 million units. However, one of the key challenges of operating in the UK eBooks market remains the high VAT, charged at 17.5% on digital content, whereas printed books are exempted from this tax making eBooks comparatively more expensive than the hardcover versions. This factor has affected the affordability of eBooks in the UK compared to other regions, where they are available at 15-20% lower price compared to the hardcopy versions, and affordability becomes the major factor for consumers preferring eBooks.

France
The eBooks market is growing at a rapid pace in France, but it constitutes a small percentage of the total published content in the country. According to trade group French Booksellers Union, in 2010 eBooks accounted for less than 1% of the $2.2bn total national book publishing market. The French government passed a law in 1981 which prohibits book sellers from offering heavy discounts in order to protect independent small book sellers from large retail book chains. However, this law does not apply to digitally printed media, because of which eBooks are priced 20-25% lower than hardcover books. To address this, a law was proposed by Senator Jacques Legendre which will allow publishers to determine the retail price of eBooks in France. The objective of proposing the law was to protect the 3000 independent bookstores in France from taking a hit on their margins. In November 2010, the French government passed a law according to which all eBooks will be sold at the same price as their hard cover printed versions. France currently imposes a 19.6% tax on eBooks, which is equivalent to the tax on consumer products whereas printed works are taxed at 5.5%. As a result, lawmaker Herve Gaymard proposed a law to reduce the current VAT imposed on eBooks, which was expected to offset the effects of the law pertaining to antidiscounts on eBooks. However, as of now the French parliament has rejected this plea because it does not comply with the European directive on books and digital content.

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Book sellers in France are adopting a proactive approach to stay competitive in the market by launching their own websites to sell digital versions of books.

South Korea
The eBooks market is showing good growth in South Korea, and while in 2010 it contributed to 5% of all publications in the country, it is expected to grow to 20% by 2012 as per the Korea Electronic Publishing Association (KEPA). South Korea is a huge market for eReaders, and while the government initially banned imports of Apples iPad, the ban was eventually lifted. By the end of 2010, there were more than 500,000 iPad users and 100,000 Samsung Galaxy users in South Korea. The South Korean government is taking several steps to develop the eBooks industry, and the Ministry of Knowledge Economy plans to collaborate with the education and cultural ministries to make available the technologies and standards required to foster this industry.

India
eBooks continue to receive a lukewarm response from Indian readers and the key reasons for the sluggish growth remains lack of technical know-how, high price of eReaders, and preference for hardcover books over the electronic version. While Indian consumers are getting accustomed to reading e-newspapers, ejournals, and e-newsletters, adoption of eBooks is still very limited. This trend can be highlighted from the fact that Amazon Kindle, despite reducing its price in India, was not able to sell more than 2000 units of Kindle between its launch in October 2009 and July 2010. In addition, the more economic option, PI (priced at $200) has not registered impressive growth. The limited sale of eBook readers in India is another reason for publishers not taking the initiative in launching digital versions of their books. While the eBook market is expected to show growth in the future, most of the growth will be driven by availability of eBooks on mobile phones rather than eReaders. eBook growth is expected to pick up slowly in India, and may not follow the growth trajectory of other developed countries such as the US.

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China
eBooks are growing in popularity in the Chinese market, revolutionizing the publishing industry in the country. The market recorded 2.1 million eBook unit sales in 2009, and is expected to grow to 17.6 million units by 2014 (as reported by iSuppli). This growth is driven by the rapid sale of eReaders such as Amazon Kindle and Sony Reader in the country, and the positive response for eReader adoption is leading to Chinese manufacturers focusing on this growing market.

Figure 27:

Chinese eBook shipments (000 units), 2009-14

20,000

15,000

eBook shipments (000 units)

10,000

5,000

0 2009 2010 2011 2012 2013 2014

Source: iSuppli

BUSINESS INSIGHTS

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Table 20: Chinese eBook shipments (000 units), 2009-14

2009 eBook shipments (000s) Growth rate (%)

Source: iSuppli

2010 3,600

2011 5,050

2012 7,600

2013 12,550

2014 17,600

CAGR 53.0%

2,100

71.4%

40.3%

50.5%

65.1%

40.2%

BUSINESS INSIGHTS

The domestic eReader market is growing leaps and bounds, and in 2010 the Chinese government passed a regulation to promote the domestic eBooks industry. As per the regulation issued by the Chinese General Administration of Press and Publication (GAPP), strict standards will be followed to address issues related to investments, content standards, and copyrights. Local e-reader manufacturers in China are reaping the benefits associated with the growing demand for eReaders, and Chinese firm Hanwang Technology sold 200,000 eReaders in Q1 2010 compared to 267,000 in 2009, owing to growing demand from the domestic and international markets.

Brazil
The eBooks market in Brazil is in its nascent stages, with sales driven by the early adopters in the market. One of the major inhibitors of the growth of the market is the high price of eReaders, caused by very high import duties. For instance, an Amazon Kindle 3G costs more than $400 in Brazil which is double its price in the US due to more than 100% import duty. Similarly, the price of an iPad ranges from $985-$1500. In addition to high priced hardware, a lack of digital rights is limiting publishers from launching the digital version of their books. Most contracts for Brazilian book titles do not include content digitization clauses, so publishers need to liaise with book writers and agents in order to obtain the required permissions for digitizing. Having said that, unlike other markets such as France and Japan, publishers in Brazil are actively contributing to the digital books segment and key eBookstores such as Gato Sabido and Saraiva are 114

continuously growing their eBooks catalog. Gato Sabido sells more than 2,500 Portuguese titles and 130,000 English titles. Similarly, Saraiva has 2,000 Portuguese and 205,000 English language titles. Gato Sabido claims to have sold 10,000 eBooks in 2009 and reports that 50,000 freely available eBooks were downloaded from its site.

Challenges in eBook delivery

The key challenges experienced in the eBooks industry include delivering localized content in different geographies, high VAT imposed on digital content, and existing DRM technology in the eBooks industry.

Formulating country specific content delivery strategy

Device manufacturers and online bookstores are now facing the challenge of rolling out the eBooks concept on a global scale. While eBooks are rapidly gaining market share in the US, key markets in Europe are still in the very early stages. Market trends emerging in the US show that consumers have been adopting eReaders that offer an easy process of buying and reading eBooks. Key players such as Amazon have been successful in providing an integrated user experience with easy-to-use reading devices connected with online book stores along with competitive prices. One of the key challenges for existing players is to develop a content delivery strategy to take the successful business model in the US to other markets, customizing it according to the local environment.

Unfavorable tax policies is significantly impacting growth in Europe

Favorable tax policies are one of the key growth drivers encouraging players across the value chain. A survey by the British Publishers Association indicates that in about 84% of the 88 investigated countries, printed books are subject to reduced VAT. However, eBooks are subjected to the full rate of VAT. This difference is affecting the growth of the eBook market in Europe. In the UK, VAT is not applicable on printed books, while a full rate of 17.5% is charged for digital content. In Germany, printed books are subjected to a VAT of 7%, but a rate of 19% is charged for digital books. In May 2009, the EU modified the 2006/112/EU directive for reduced VAT. However, this is limited to physical media such as audio books and content on CD-ROM. 115

Managing sales to create a sustainable business model around content delivery

Digital transformation is changing the publishing industrys traditional revenue model and its value chain. New players such as Google and Apple are entering the market and are challenging the established players. The future of existing players will depend on their ability to adapt to the dynamics of a digital value chain where content delivery devices, software and user experience will play a key role. This is especially true for the European markets, which are still in nascent stage with eReader sales yet to attain reasonable volumes. Waterstones, the UK based bookstore chain, has sold only 60,000 eReaders since autumn of 2008. In the Netherlands, iRex Technologies recently had to file for bankruptcy protection. The company launched eReaders in 2008 but could not manage to generate the required sales volumes. Others filing for bankruptcy protection include the European division of Foxit and the manufacturer of the Cool-er eReader. Market estimates suggest that up until spring 2010, around 50,000-80,000 eReaders were sold in Germany. Although the market has a wide range of eReader models, sales are quite sluggish due to various factors, primarily due to limited functions and high price range. In recent months, eReader manufacturers have reduced prices following entry of tablet PCs.

Developing simple yet effective DRM systems

DRM has been a topic of heated debate in the publishing industry. The publisher or the author can protect eBooks for restricted use or to prevent unauthorized duplication. Adobe Digital Editions is the typical copy protection method. However, user registration is a relatively complicated process and impacts the user experience. Partially visible digital watermarks can be an alternative to it, so that the purchased eBooks can be uniquely allocated to one consumer. Another DRM policy option followed by Amazon and Apple is to register the content to one user, which allows the user to read eBooks on multiple devices, but does not allow them to be transferred to a device registered to someone else.

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In the long run, cumbersome DRM policies are bound to disappear from a content delivery perspective, and the eBook market will follow the developments seen in the music market where music publishers started providing DRM-free music to users, after a lengthy battle against file sharing.

Increased sophistication of eReaders at lower prices

To become a mass market product, eReaders need to overcome two key challenges. Firstly, user experience needs to improve. In terms of looks, photo display, color content and touch screen navigation, eReaders cannot match the capabilities of tablets. eReaders are also not particularly suitable for newspapers, magazines and special interest literature. Readers of these publications often want to skip pages and chapters, and search the text for particular words and phrases. Existing eReaders are unable to cater to these needs. Secondly, prices need to drop further to increase market penetration.

Content delivery strategies followed by publishers

The digital books market has witnessed increased competition and lower margins at the retailer level, driven by multiple layers of intermediaries, including publishers, equipment suppliers, mobile operators, and application and technology providers. Key players in this market have adopted different strategies to gain market share: Amazon has been focusing on increasing its market share with aggressive pricing policies and delivering enhanced user experience through the Kindle Apple is developing more restricted but more localized offers on its iBooks application Google Editions is leveraging its digitization program and advanced search algorithms, to allow users to search text across its book collection.

Amazon focusing on developing integrated shopping and delivery system

Amazon has been focusing on creating a content delivery system integrated with its online store. The company differentiates itself through its simplified, integrated shopping and delivery system. This trend is also gaining popularity in Europe. UK-based bookshop chain WHSmith is trying to emulate Amazons lead by

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offering customers a seamless shopping and reading experience. The chain has been promoting its iRiver Story in physical stores and on its website since July 2010. The iRiver Story reader connects to WHSmiths 100,000-title online store through WiFi. Although Amazon had a first mover advantage in Europe, nearly all of its eBooks are in English with limited titles in other languages. The strategy followed by European publishers and device manufacturers is focused on offering more localized content than Amazon, but with eReaders and services that are on a par with Kindle.

Google eBooks focusing on the cloud

Googles eBook service allows users to store books purchased in the cloud, enabling them to access eBooks seamlessly across platforms. Canada based Kobo eBook store also has a similar cloud based storage and access strategy. This business model is expected to be reasonably competitive with Amazons integrated store, device and applications model. Google recently acquired eBook Technologies, a company focused on developing a complete eBook and eReader platform. Although there is no clear information provided by the company, Googles strategy seems to be focused on acquiring RB2Project, a utility that can be used to take an unencrypted .rb file and convert it to either HTML markup for import into eBook Publisher or directly to a .imp file for viewing on the supported devices.

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eBooks in the future

Localizing content delivery
Over the medium to long term, there will be a strong focus on developing country specific strategy based on local consumer preferences. This will be reflected across the content delivery value chain, including hardware (eReader device), software applications, and the online store with local eBook collection. To enable this, existing players are likely to form alliances with content providers to define their country / market specific strategy.

Developing a cost effective content delivery strategy

From a fundamental perspective, the focus (especially in the US) will shift towards establishing a mass market for eBooks, which can offer a superior value proposition in terms of price and usability. In the short term, this may lead to higher operating costs although over the medium to long term the focus is going to be on building a high margin business with strong volumes. Developing cost effective content delivery technology would help publishers develop a pricing strategy that offers a superior value proposition to customers without necessarily undermining the value of the content. Consequently, this will enable publishers and online retailers to gain new customers, driven by lower costs compared to printed books and additional features to enhance user experience across multiple formats and devices.

Existing online bookstores will continue to dominate

Owing to their existing customer base and experience as internet retailers, online bookstores appear to be the most well placed for digital transformation. Given the challenges in terms of developing a rich user experience and significant scale to sustain margins, these existing players are expected to continue to dominate the market. Nevertheless, new players could challenge established online bookstores, by offering customers an increased range of localized products. The rapid rise of the iTunes store indicates that retailers should not underestimate Apple as an online content seller, although its iBookstore does not carry many non-English books, which will be a disadvantage in most European markets.

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Increased focus on portability across multiple media, formats, and platforms

Over the short to medium term, expect a strong focus on creating differentiation on the basis of user experience by making eBooks available seamlessly across multiple media, formats, and platforms. Content delivery innovation in this direction would determine the ability of publishers and online bookstores to establish a mass market for eBooks and gain market share in this high growth market. There will be an increased focus on generating incremental revenue by going beyond text based books to include audio, video, and games. This will also include special applications, and special eBook editions enriched with music and video. Over the next 3-5 years, there will be increased focus on developing search friendly eBook formats. In addition, we expect cloud based new business models to start shaping up over the next 3-5 years. This would include interactive titles and subscription based library services.

eReaders to retain customer segment despite rising competition from other devices
Tablet PCs have gained popularity in the recent past in the US. Despite certain drawbacks when compared with Tablet PCs, eReaders are expected to maintain their customer segment. Over the medium term eReaders are expected to truly represent a niche market, catering to people who are focused readers and would not like to be distracted. Prices of eReaders are expected to continue to fall, which will help them to maintain a competitive position in the market.

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Chapter 7 The future of content delivery

Summary
The rising adoption of high resolution based video content has increased investments in cloud-based streaming services. Users will prefer to view video content as a service, favoring video streaming websites. This will mean a gradual shift from preferring to own video content to simply having easy and ubiquitous access to it. With the advent of streaming and on-demand music services, users can choose not to store and carry their music, and can access music like a service as and when required. Cloud based gaming is gaining traction in the casual games segment, with serious gamers still preferring to own games in physical formats. Adoption of cloud-based electronic books is dependent on the available subscription plans and the affordability of this service when compared with purchasing hardcover books.

Introduction
This chapter highlights the changes occurring in the content delivery market, primarily looking at the issue of content ownership. Primarily, we are witnessing a shift in consumer mindset, as they prefer to pay for access rather than ownership of certain types of content.

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Video
The video segment has come a long way, from the introduction of Video Home System (VHS) to the launch of video content in CDs and DVDs in the 90s. The video landscape changed further with the introduction of high definition DVDs and Blu-ray players, and now the segment is witnessing the rising popularity of video streaming services. As demonstrated in the figure below, until now the trend has been towards improved quality, while still maintaining ownership of a physical media collection. With the advent of streaming services, consumers no longer see the need to collect physical copies but simply access what they want to see wherever and whenever they want.

Figure 28:

Evolution of video delivery

Ownership/collection Easy access

80s/90s

90s/early 90s

90s

Late 90s/ onwards

VHS

DVD

HD DVD / Blu-ray

Streaming

Source: Business Insights

BUSINESS INSIGHTS

Internet based videos are becoming very popular, with between 60-70% of global internet users watching internet videos. The increased demand for online videos is driving content owners to introduce high resolution based video content, which has made cloud based streaming services very popular as it facilitates users to stream huge movie files. The huge file size of a typical HD movie file makes it difficult for users to store all the downloaded content on devices such as PCs, smartphones or tablets, which forces them to delete or transfer videos in order to make space for newer ones. Most DRM protected video files provide limited rights to users, typically 122

prohibiting video transfers, which makes cloud based video streaming services very beneficial for viewing video content. This trend can also be depicted from the rising popularity and success of video streaming services such as Hulu and Netflix. Cloud based video streaming is set to become the preferred mode of viewing movies and other videos.

Music
The change in the music landscape is also bringing a change in attitudes towards music ownership. The music industry, which saw music delivered through mediums such as vinyl records, cassettes and CDs (collections of which were often a source of pride or even a status symbol) is now evolving to music delivered digitally with limited or no ownership of music. The trend began with MP3 players enabling whole music libraries to be carried on a small device, and has evolved towards on-demand streaming services.

Figure 29:

Evolution of music delivery

Ownership/collection Easy access 90s Early 90s Early 90s

70s

80s

Vinyl

Cassette

CD

MP3

Streaming

Source: Business Insights

BUSINESS INSIGHTS

The advent of streaming and on-demand music services such as Pandora, Spotify, and Rhapsody means that users can choose not to store and carry their music on music players or MP3, and can access music as a service as and when required through the cloud, leveraging devices such as mobile phones. Subscription based services which require users to pay a monthly fee of $12-15 and provide unlimited access to huge music catalogs are expected to gain further traction in the near future, as this will allow users

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to access a wide music library through their mobile phones and any other device. However, this trend is expected to gain widespread adoption only if the mobile internet is fast, reliable, and affordable. In addition, all record companies should be open about placing their music stores in the cloud, which is starting to happen but will pick up only gradually. Another limiting factor is the attitude of users many will not be willing to pay a monthly subscription fee of $10-15 due to the fact that they dont buy new music worth this amount every month. In addition to this, some users are more comfortable carrying their music with them and owning their own copies of it. Cloud based music access has strong potential in the music industry, with users being able to access their playlists over the web through dedicated web portals. However, in developing nations where users are not always connected to the internet, owning music in a physical format will remain a reality for years to come.

Video gaming
Video gaming established its market through gaming arcades in the 70s and followed this up with games made available in floppy disks and cartridge-based consoles. Console manufacturers such as Sega and Nintendo became household names. In the 90s Sony launched PlayStation, a CD-Rom based console which brought improved graphics and digital sound-effects to gaming. The next big leap in the industry is now upon us, as streaming games services leverage cloud storage.

Figure 30:

Evolution of video game delivery

Ownership/collection Easy access 90s/ Early 90s Late 90s onwards

70s

80s

90s

Arcade
Source: Business Insights

Floppy disk

Cartridge

DVD

Streaming
BUSINESS INSIGHTS

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Cloud based gaming can capture a huge market as it facilitates users to play games instantly without discs or installed software. In addition, it provides users with a gaming platform which can run on low-end hardware without becoming obsolete. It is also a welcome change by game publishers as it prevents piracy. This service is expected to grow further, with cloud based gaming made available on mobile devices. For instance, HTC has acquired a $40m stake in cloud based streaming game company OnLive, with a view to providing games on mobile devices. OnLive will help users run games on dedicated consoles or, in this case, on a phone. However, until it is proven to deliver the same quality and in-game experience offered by high-powered consoles and PCs, cloud based gaming appears promising only for casual gamers. Serious gamers will continue to trust what they know and buy games in physical formats.

eBooks
The publishing industry, which was long dominated by hardcover books, started transitioning to the electronic format in the 90s, which is further evolving to eBooks being streamed from the cloud.

Figure 31:

Evolution of eBook delivery

Ownership/collection Forever Easy access 90s/ onwards

Books

eBooks

Source: Business Insights

BUSINESS INSIGHTS

Cloud based eBooks services allow users to stream books from the cloud rather than physically owning them. This format is still in its nascent stage and is considered equivalent to renting a book online. This 125

format offers a good option to users when compared with buying a DRM based eBook; even after buying a DRM based book, a user gets only limited rights. However, the uptake of cloud based books is significantly dependent on the available subscription plans and the affordability of this service when compared with purchasing hardcover books or buying a DRM based eBook. We believe users still have a strong preference for hardcover books over electronic books, and while the eBooks industry is picking up gradually, ownership of books in physical format will continue to be the dominant format for many years to come.

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Chapter 8 Competitive landscape

Summary
The CDN market remains dominated by pure play vendors, however, integrated players such as Level 3 Communications are also focusing on garnering a share of the CDN market. Akamai and Limelight Networks hold the majority share of the CDN market. Akamai crossed the $1bn mark in revenues in FY 2010, and has evolved from delivering static content to on-demand content services. Akamai has also started laying stronger emphasis on its advertisement and mobile solution portfolio, considering the increasing importance of advertisements for content owners for monetization of services and the rising market of mobile content delivery. Limelight on the other hand is laying strong emphasis on providing content services to enterprises and the government sector. It is also investing in the development of mobility and monetization solutions with a strong focus on its value added services (VAS) portfolio. Level 3 Communications has a strong focus on offering good quality streaming services at very competitive price points, owing to which it was able to bag contracts such as streaming of the Olympics, the US Democratic National Convention, and US President Barack Obamas inauguration. The company is now focusing on its website acceleration services, including Site Accelerator and Site Transformer. Adobe, InterTrust Rights System, Rovi, Microsoft Contentguard, and IBM are the key vendors operating in the DRM segment.

Introduction
This chapter profiles the leading content delivery network (CDN) providers highlighting their product portfolio, strategy, recent developments, key clients, and a financial overview. In addition, it includes overviews of major DRM vendors, including Adobe, InterTrust Rights System, Rovi, Microsoft Contentguard, and IBM. 127

Content Delivery Network (CDN) providers

Akamai Technologies
Overview Akamai Technologies, Inc. (Akamai) holds a leading position in the content delivery space, and focuses on providing services for improving web and mobile content and applications, online high definition (HD) video, and secure e-commerce. It claims to have a cloud based platform with 84,000 servers present in 72 countries, and has more than 2000 employees. The company crossed the $1bn mark in revenues in 2010, up 19% year-over-year. The company was incorporated in Delaware in 1998 and is headquartered in Cambridge, Massachusetts. Product portfolio The company provides four major content solutions encompassing Digital Asset Solutions, Dynamic Site Solutions, Application Performance, and Advertising Decision Solutions, details of which are highlighted below:

Figure 32:

Akamai Technologies product portfolio

Akamai

Digital Asset Solution

Dynamic Site Solution

Application Performance

Advertising Decision

HD Network Dynamic Site Accelerator Media Delivery

Web Application Accelerator Predictive Segments

Electronic S/w Delivery

Source: Akamai Technologies

Dynamic Site Accelerator Ent.

IP Application Accelerator
BUSINESS INSIGHTS

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The Digital Asset solution provided by the company includes the following modules: Akamai HD Network: Provides media businesses with a high definition TV-like experience managed from a single network for multiple formats and encoding rates. Akamai Media Delivery: Helps media providers deliver media assets, and allows monetization of assets. It also provides insight through analytics and reporting tools. Electronic Software Delivery: Helps deliver software over the internet. The Digital Site solutions include Dynamic Site Accelerator and Dynamic Site Accelerator Enterprise. Dynamic Site Accelerator claims to ensure reliability of dynamically-rendered personalized websites, and Dynamic Site Accelerator Enterprise helps in increasing the scale and performance of websites without added infrastructure. Akamais Application Performance solution includes Web Application Accelerator which improves performance and reliability of Web-based applications, and IP Application Accelerator which provides the architecture for delivering IP-based applications. The companys Advertising Decision solution, Predictive Segments, leverages predictive modeling, and helps its customers to reach online consumers with real-time advertisements. Strategy Akamai has evolved from delivering static content to on-demand content services, as it understands the significance of cloud based delivery in the future. Akamai has also started laying stronger emphasis on its advertisement and mobile solution portfolio, considering the increasing importance of advertisements for content owners for monetization of services and the rising market of mobile content delivery.

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Key developments Akamai partners with BMC Software (July 20, 2011) Akamai Technologies announced the release of Edgeview, a virtual software appliance, powered by BMC Software, which will provide its clients with visibility into the performance of Web applications delivered over the Akamai Platform. Akamai expands business into Central and Eastern Europe (June 28, 2011) Akamai Technologies announced expansion of its presence in five countries in Central and Eastern Europe (CEE) including Czech Republic, Hungary, Poland, Romania and Slovakia. Akamai partners with Strangeloop for web content optimization (Jan 18, 2011) Akamai and Strangeloop entered into a strategic agreement to offer a combined cloud optimization solution, in addition to web content optimization (WCO), to facilitate content providers to achieve faster web page rendering times. Rackspace Hosting and Akamai collaborate for online computing (Jan 12, 2011) Rackspace Hosting, a hosting and cloud computing provider, and Akamai Technologies, announced a strategic relationship that will enable Rackspace to offer Akamais web acceleration and cloud optimization services as part of its cloud hosting portfolio. Akamai releases cloud based payment services (Sept 27, 2010) Akamai has launched its Edge Tokenization electronic payment security service, which converts credit card data to a token in its cloud for web transactions on a merchants infrastructure, thereby preventing credit card information theft. Akamai acquires Velocitude (June 10, 2010) Akamai Technologies has acquired Velocitude, a mobile services platform, for approximately $12m. Through this acquisition, Akamai plans to extend its cloud services by the addition of mobile content transformation functionality.

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Key clients Akamais key clients are listed in the table below:

Table 21: Akamai Technologies key clients

Apple Canadian Broadcasting Corporation Verizon Wireless

Source: Akamai Technologies

MTV Networks Fox Interactive Nintendo

BUSINESS INSIGHTS

Financial overview Akamai Technologies crossed the $1bn mark by reporting a total of $1.02bn in revenues in 2010, which was a 19% increase compared to 2009. The increase in revenues is primarily attributable to the growing portfolio of cloud based digital media solutions.

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Figure 33:

Akamai Technologies key financials ($m), 2006-10

1200

Revenues

Net Profit

Cash from Operations

1000

800

Millions ($)

600

400

200

0 2006 2007 2008 2009 2010

Source: Akamai Technologies

BUSINESS INSIGHTS

Table 22: Akamai Technologies key financials ($m), 2006-10

$m Revenues Cash from Operations Net Profit

2006 428.7 132.7 57.4

2007 636.4 237.0 101.0

2008 790.9 343.5 145.1

2009 859.8 424.4 145.9

2010 1,023.0 402.5 171.2

CAGR 24.3% 32.0% 31.4%

Source: Akamai Technologies

BUSINESS INSIGHTS

132

Limelight Networks
Overview Limelight Networks (Limelight) provides content delivery network services for businesses focused on video, music, games, software, and social media, in addition to associated services such as storage, data center, transit, and consulting services. The company was formed in 2001 and is headquartered in Tempe, Arizona. It recorded revenues of $183.3m for fiscal year 2010 and has 689 employees. Product portfolio Limelight provides users with its XD Platform with adaptive intelligence, which facilitates making real-time decisions about content requests. It also offers the following services: LimelightDELIVER: provides HTTP/web distribution of digital media files such as video, music, games, software, and social media. LimelightSTREAM: provides on-demand or live streaming of content including formats such as Adobe Flash, MP3 audio, QuickTime, RealNetworks RealPlayer, and Windows Media. LimelightSITE: routes content over its infrastructure rather than leveraging the internet, thereby improving content delivery speeds. LimelightREACH: helps deliver device optimized content by auto-detecting the end-user device. LimelightADS: allows publishers to present pre-, mid- or post-roll video and audio advertising into media which is delivered to connected users. LimelightPS: a professional services division which helps customers to determine content distribution strategies, network architecture design, content storage infrastructure, live event execution, and best practices related to online web infrastructure. In addition, it offers LimelightCONTROL, a reporting suite which provides users with more control over the companys content delivery service, including its XD Platform. It also provides LimelightHD, an extension to LimelightSTREAM and LimelightDELIVER services, which helps customers to deliver high-definition content to end users. 133

Strategy The company is laying strong emphasis on providing content services to enterprises and the government sector. It is also investing in the development of mobility and monetization solutions and in 2009 it acquired EyeWonder, Inc., a provider of interactive digital advertising solutions, and Delve Networks (provider of cloud-based video publishing services) in 2010. The company is also focusing on its value added services (VAS) portfolio and plans to grow VAS to 50% of its revenues from the current level of 36%. Details are charted below.

Figure 34:

VAS as a % of revenues for Limelight Networks, Q109-Q410

40% 36% 35% 34%

30%

28%

25%

20% 15% 15% 10% 10% 11% 11% 13%

5%

0% Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Q4 10

Source: Limelight Networks

BUSINESS INSIGHTS

134

Key developments Limelight Networks unveils REACH Interactive, in-stream video ad formats for mobile applications (Jun 20, 2011) Limelight Networks announced the availability of Limelight REACH Interactive, a service to enable interactive video ad units within applications running on iOS and Android platforms. Limelight Networks expands family of web acceleration services (Sep 08, 2010) Limelight Networks extended its website acceleration services with the introduction of Commerce Accelerator and Portal Accelerator. The company claims that these solutions will improve web experiences by providing consistent performance for dynamic and personalized content, online commerce transactions, and web applications, irrespective of geography. Limelight Networks acquires Delve Networks (Aug 2, 2010) Limelight Networks acquired Delve Networks, a provider of cloud-based video publishing and analytics services, for an approximate price of $10m (according to analyst estimates). Delve brings more than 100 customers to Limelight, including ESPN, Hallmark, and Standard & Poor's. Limelight Networks acquires EyeWonder (Apr 30, 2010) Limelight Networks completed its acquisition of US-based EyeWonder, Inc., a provider of interactive digital advertising solutions for $110m (analyst estimates). This acquisition is expected to provide Limelight with a strong foothold in the value added monetization services domain. Limelight Networks acquires Chors (Jan 27, 2010) Limelight Networks acquired Chors GmbH, a German based online and direct marketing solutions provider. Key clients Limelights key clients are listed in the table below:

135

Table 23: Limelight Networks key clients

Activision BuyMusic Disney EA Sports

Source: Limelight Networks

Amazon Unbox DirecTV DreamWorks Facebook

Foxnews.com Ifilm MSNBC Netflix

Xbox ITV Play MySpace PlayStation Network

BUSINESS INSIGHTS

Financial overview The company registered a 39% y-o-y increase in revenues in 2010, reporting $183m. This was driven by growth in the cloud-based content delivery services and consulting services. It also recorded an increase in revenues with the addition of new customers, and added 454 new customers in 2010. The company recorded a net loss of $20m in 2010, primarily due to a 110% increase in headcount from 328 in 2009 to 689 in 2010. In addition, the company increased its R&D spending to 9% of revenues from an average of 5% over the last four years.

136

Figure 35:

Limelight Networks key financials ($m), 2006-10

Revenues Net Profit (loss) Cash from Operations

200

150

100

Revenues ($m)

50

0 2006 -50 2007 2008 2009 2010

-100

Source: Limelight Networks

BUSINESS INSIGHTS

137

Table 24: Limelight Networks key financials ($m), 2006-10

$m Revenues Cash from Operations Net Profit (loss)

Source: Limelight Networks

2006 65 6 -3

2007 103 25 -73

2008 130 -7 -63

2009 132 0 35

2010 183 15 -20

CAGR 29.5% 56.9% 24.4%

BUSINESS INSIGHTS

Level 3 Communications
Overview Level 3 Communications (Level 3) was founded in 1985 as Kiewit Diversified Group Inc. (KDG), and changed its name to Level 3 Communications, Inc. in 1998. It owns and maintains over 54,000 intercity route miles, and its network offerings span Internet Protocol (IP) services, broadband transport, co-location services, and patented softswitch-based managed modem and voice services. The company has developed content distribution services through the acquisition of the CDN services business of SAVVIS, which it purchased in January 2007, and the acquisition of Ireland based Servecast Ltd. in July 2007. It has 5500 employees. Product portfolio Level 3, an international provider of fiber-based communications services, provides the following CDN solutions:

138

Figure 36:

Level 3 Communications product portfolio

Level 3 Communications

Electronic Software Delivery Enterprise Load Balancing Live Online Broadcast Managed Video Network Media Delivery Platform Reporting and Analytics Video on Demand (VoD) Whole Site Delivery
Source: Level 3 Communications

For efficient delivery of video & media content

Maintains uptime during peak demand

For live video streams & online broadcasts

For data & video content management

For Live Video and Web Streaming

For content monetization with reporting tools

For delivering real time videos

For delivery of entire site

BUSINESS INSIGHTS

In addition to the solutions illustrated above, it also leverages the following technologies: CDN: The companys content delivery network services combine its IP network, gateway facilities and patented technology to retrieve the requested content based on location and network conditions.

139

IP/Transit: Claims to operate one of the largest international IP networks or backbones, to deliver IP transit and network interconnection solutions. Media Portal: Provides visibility into media and video delivery statistics through a media platform which facilitates content monetization. Vyvx Services: Transmits audio and video programming for customers over the companys fiber-optic network and via satellite. Vyvx services combine managed video network services, broadcast fiber services, teleport services, and encoding. Strategy Level 3 Communications forte is good quality streaming services at very competitive price points, owing to which it was able to bag contracts such as streaming of the Olympics, the US Democratic National Convention, and US President Barack Obamas inauguration. The company is now focusing on its website acceleration services, including Site Accelerator and Site Transformer. Key developments Level 3 launches new ultra-high-speed trading route between London and Frankfurt (Jul 11, 2011) Level 3 Communications announced the launch of an ultra-low-latency fibre-optic route to increase trading speeds between London and Frankfurt. Level 3 adds global capacity and new international cities (Nov 02, 2010) Level 3 has added significant capacity and five new network locations to its CDN. The completion of the installations has added 1.65 Terabits per second (Tbps) of globally available Level 3 CDN capacity. Level 3 Vyvx Services to expand HD video transport network (Oct 12, 2010) Level 3 will now offer uncompressed high-definition video transport services between Los Angeles, Washington DC and New York City, allowing customers to transmit live videos. Level 3 launches new Vyvx local switching services (Jun 07, 2010) Level 3 Communications announced updates to its local video switching offering, enabling its Vyvx customers to transmit or switch video feeds between two local loops within a single market. 140

Level 3 expands Vyvx Network into Czech Republic (Apr 13, 2010) Level 3 Communications announced the expansion of its Vyvx network into Central Europe, and with the new connectivity into Prague, Czech Republic-based telecommunications provider Dial Telecom signed on with Level 3 to bring Radio Free Europe/Radio's content from Prague to Washington DC. Level 3 and partners collaborate to demonstrate 3D streaming (Apr 12, 2010) Level 3 Communications announced its collaboration with Microsoft to deliver live and on-demand high definition, 3D streaming services for both PC and television. Level 3 announces upgrade to Vyvx infrastructure (Apr 09, 2010) Level 3 announced that it will upgrade its Vyvx VenueNet infrastructure to introduce new services for broadcast delivery. Level 3 expands content delivery partner programme in Europe (Mar 30, 2010) Level 3 announced the European expansion of its content delivery partner program (CDP). Key clients Level 3s key clients are listed in the table below:

Table 25: Level 3 Communications key clients

Netflix Microsoft NHL

Source: Level 3 Communications

Fox Sports Comcast BBC

Yahoo! Sky CNN

BUSINESS INSIGHTS

Financial Overview According to secondary sources, Level 3s CDN revenues accounted for $60m in 2010.

141

EdgeCast Networks, Inc.

Overview EdgeCast Networks, Inc. is a content delivery network provider founded in 2006 and headquartered in Santa Monica, California. Its focus areas include media and entertainment, gaming, and e-commerce. Product portfolio EdgeCast provides the following services, and its solutions are focused on areas such as media and entertainment, gaming, live events, whole site acceleration, software distribution, e-commerce, and wholesale CDN. The details of its services are highlighted below: Application Delivery: for delivery of web applications and non-static content. HTTP Caching: for a faster website. Streaming: provides live or on-demand streaming across Flash, Silverlight, or HTTP formats. Storage: provides cloud based storage. Security: provides support for encrypted and authenticated HTTPS, custom security certificates, token authentication, SWF authentication, Encrypted Real Time Messaging Protocol (RTMPE), and rulesbased delivery. Analytics: provides 360 degree visibility into content performance and user experience. Data Center: improves performance by deploying servers in optimized facilities. Strategy The company has been actively focused on increasing its client base and its global network through its direct sales and marketing efforts, supported by a network of partner resellers. As a result, it doubled its customer base to 2,000 customers by the end of 2010. The company also expanded its global network with the launch of new data centers in Singapore and Paris, as well as partnerships with leading telecommunications companies including Canadas TELUS and Australias AAPT. It is also making investments in strengthening its value-added services.

142

Key developments EdgeCast announces Application Delivery Network (Dec 9, 2010) EdgeCast Networks announced the beta of its Application Delivery Network, a new global delivery service that is expected to improve the performance and throughput of sites running real-time web applications. EdgeCast adds streaming for Apple iOS4 devices (Nov 18, 2010) EdgeCast Networks announced full support for HTTP live and on-demand streaming to Apple iPhone, iPad, and iPod Touch devices. EdgeCast announces cloud storage solution (Oct 22, 2010) EdgeCast Networks announced its cloud storage solution built on its distributed storage platform. TELUS and EdgeCast bring global content delivery to Canadian market (Aug 03, 2010) EdgeCast Networks and TELUS, a Canada-based telecommunications provider, announced a joint agreement to open EdgeCasts global network to TELUS customers. AAPT and EdgeCast Networks' partner to enter Australian market (Apr 14, 2010) EdgeCast Networks and AAPT, a leading Australian telecommunications provider, announced a joint agreement to open EdgeCast's global network to AAPT's Australian customers. EdgeCast Networks secures $10M growth investment (Apr 12, 2010) EdgeCast Networks has closed a $10m Series C financing round led by Menlo Ventures. The company will use the funds to develop and launch new value-added services, expand its global network, and grow its sales and marketing programs. EdgeCast Networks launches EC360 Analytics Suite (Mar 16, 2010) EdgeCast Networks announced its EC360 Analytics Suite, an upgrade to its reporting package, which is expected to provide better monitoring and monetization of online content.

143

EdgeCast expands global capacity (Jan 14, 2010) EdgeCast Networks is adding to its global capacity by opening two new facilities in Singapore and Paris. Additionally, the company's content delivery network now interconnects with more than 800 user networks around the world. Key clients EdgeCast Networks key clients are highlighted in the table below:

Table 26: EdgeCast Networks key clients

Yahoo! S2Games World Online Gaming League

Source: EdgeCast Networks

Grind Networks ESPN IMAX

BUSINESS INSIGHTS

Internap Network Services

Overview Internap Network Services Corporation (Internap) provides data center services and a suite of network optimization and delivery services. Its content delivery network services facilitate users to stream and distribute rich media and content such as video, audio, software and applications. It offers live and ondemand streaming services for Adobe Flash, HTTP Streaming for iPhone and iPad, and streaming services for Windows Media and Microsoft Silverlight. Internap recorded revenues of $244m during the fiscal year 2010, a 5% year-on-year decline. The company was founded in 1996, is headquartered in Atlanta, Georgia, and has over 400 employees. Product portfolio Internap provides users with a MediaConsole, which is a file management and reporting system that lets users upload a single media file which is then transcoded by Internap. The console also allows users to

144

organize and manage media assets, secure content, and analyze details of content interactions. In addition, the company offers the following services: Whole Site Delivery: provides optimal delivery of web content, including streaming video and audio, text, image formats such as jpeg and gif, documents such as white papers and other information formats. Software Delivery: Enables the delivery of software, patches, upgrades and other large files for gaming companies and application software companies among others. Media Delivery: Facilitates media delivery supporting multiple delivery modes such as Live Delivery, Video on Demand, and Linear Channel, and multiple distribution formats such as Adobe Flash, including Dynamic Streaming; iDevice; Microsoft Silverlight, and HTTP streaming. Live Event Broadcasting: Enables delivery of live events such as concerts, speeches, sporting events, meetings, and commercial events. Authentication: Delivers media to the intended audience and enables control by restricting access based on geographic region or audience type. Secure Sockets Layer (SSL) Acceleration: Enables retention of domain name by employing an SSL certificate, allowing companies to serve secure objects and pages via Internaps CDN using HTTPS. Strategy The company is primarily focused on its data center business, and to attain higher margins it is churning its customers in low-margin, partner data center facilities. In its IP services segment (which includes the CDN business) the company is looking to address the decrease in pricing through increased network traffic growth. Key developments Internap offers first major storage service using OpenStack (Jan 18, 2011) Internap is offering a new public cloud storage service that it built using software from OpenStack, the opensource cloud software project initiated last year by Rackspace and NASA. 145

Internap expands IT infrastructure service offering (Jan 18, 2011) Internap announced the launch of Internap XIPCloud Storage, a new public cloud storage service based on Internaps Performance IP technology. Internap adds cloud-based security services to managed hosting (Jul 21, 2010) Internap announced that it has entered into a reseller agreement with Alert Logic to add cloud-based security services to its managed hosting portfolio. Internap enhances managed hosting solution (Jul 21, 2010) Internap claims to expand its Managed Hosting solution by including high-performance servers, multiple enterprise-class storage options, layered data protection solution, and a new managed security service. Internap unveils new XIP web acceleration service at Interop (Apr 27, 2010) Internap announced Accelerated IP, XIP, a new service-based Internet traffic accelerator which the company claims can improve the performance of enterprise web services and applications by up to 400%. Key clients Internaps key clients are highlighted in the table below:

Table 27: Internap Network Services key clients

Sundance Institute Digital Sports Video Carleton University

Source: Internap Network Services

GamersGate Sigster Realtime Worlds

BUSINESS INSIGHTS

Financial overview Internap reported flat revenue growth in 2009, and registered a 5% decline in sales in 2010 with revenues totaling $244m. An 8% decline was reported in the IP segment and 2% decline in data center services. The company has achieved a reduction in its net loss over the years due to the margins earned from its data center services, and reported net loss of $4m in 2010. 146

Figure 37:

Internap Network Services key financials ($m), 2006-10

Revenues Net Profit Cash from Operations

300 250 200 150 100 50 0 2006 -50 -100 -150 2007 2008 2009 2010

Source: Internap Network Services key financials ($m), 2006-10

Millions ($)

BUSINESS INSIGHTS

Table 28: Internap Network Services key financials ($m), 2006-10

$m Revenues Cash from Operations Net Profit

2006 181 29 4

2007 234 28 -6

2008 254 38 -105

2009 256 38 -70

2010 244 40 -4

CAGR 7.7% 7.7%

Source: Internap Network Services

BUSINESS INSIGHTS

147

Highwinds Network Group

Overview Highwinds Network Group, Inc. is a content delivery, network and hosted IP services business that offers multiple services including CDN, IP transit, content storage, and IP software. The company has about 175 employees and is headquartered in Winter Park, Florida. Product portfolio Highwinds provides its users with a System Suite, which the company claims includes all the internet infrastructure services under a single monthly revenue commitment. Its System Suite allows customers to mix and match physical locations, services, carriers, and formats to assemble a network topography. Some of the services provided by Highwinds are highlighted below: Highwinds HD: Distributes content, file downloads, and streaming media over RollingThunder, a private network of interconnected servers. HTTP Delivery: Enables delivery of video games, music, photographs, movies, podcasts, software, presentations, and other rich media and high-definition files. On-Demand and Live Streaming: streaming solution for online video websites and live streaming. Mobile Delivery: Enables the delivery of live or on-demand video content to mobiles devices such as the iPhone. IPTV: Provides streaming on Adobe and Microsoft formats. Content Storage: Offers three storage options: Customer Origin; Highwinds Origin; and CDN Edge Storage. Content Protection: Solutions include URL Signing, GEO Blocking, HTTP Referrer Restriction, RTMPe, SWF Verification, Live Streaming IP Lock & Login, and HTTP Authentication. Custom Solutions: Provides custom content delivery solution.

148

Professional Services: Provides website administration & maintenance, online video services, content management solutions & database development, online marketing & social media solutions, ecommerce solutions, and mobile & streaming applications. StrikeTracker Console: The StrikeTracker is a Rich Internet Application (RIA) that provides an integrated front-end control console for managing Highwinds CDN services. It provides real-time analytics and self-service content management functions. Strategy The company has been witnessing a rapid growth in its business and to sustain the growth, it is focusing on scaling up the business in terms of capacity, improving customer experience, and geographical presence, particularly in emerging markets such as Latin America. Key developments Highwinds unveils strong presence in Brazil (Nov 01 2010) Highwinds has established its operations in Brazil to support the region's growing content delivery and network services needs. Highwinds acquires BandCon (Jul 08, 2010) Highwinds has acquired California based Internet infrastructure service provider, BandCon, which provides Highwinds with a new sales presence, in addition to double network capacity. It is also expected to diversify Highwinds revenue base. Highwinds unleashes Infinite HD for high definition streaming (May 11, 2010) Highwinds announced the availability of Infinite HD for streaming high-definition video over its content delivery network (CDN). Highwinds Capital announces $35M senior secured financing (Mar 1, 2010) Highwinds has closed a new $35m senior secured financing deal with Silicon Valley Bank and Comerica Bank, which will enable the company to refinance its existing debt.

149

Financial overview Highwinds expects $100m in revenues in 2010, with $33m EBITDA.

CDNetworks
Overview CDNetworks operates a global CDN, focusing on website content and application delivery. It offers solutions for caching, live/on-demand video streaming, and large file downloads, and caters to the gaming, high tech, manufacturing, media, retail, and software industries. It was founded in 2000 and is headquartered in Seoul, Korea, and has offices in the US, Korea, China, Europe, and Japan. Product portfolio CDNetworks offers a web performance suite, which includes the following modules: Dynamic Web Acceleration: An on-demand service targeted at delivering applications and dynamic content from CDNetworks centralized infrastructure. China Acceleration: Aimed at expanding reach by connecting with China's internet user community. Content Acceleration: Improves the performance of websites, and serves cacheable content in multiple formats such as JPGs, GIFs, CSS, JS, HTML, and PDFs. Media Acceleration: Supports Flash Media, Server, Windows Media Server, Flash Dynamic HTTP streaming and Silverlight Smooth streaming. Cloud Storage: Stores digital assets and delivers to global site visitors. Cloud DNS: A managed cloud-based authoritative Domain Name System (DNS) service. Cloud Load Balancer: A cloud-based load balancing service. Portal: CDNetworks' self-service portal is designed to give user control over their CDN services leveraging metrics.

150

Strategy CDNetworks has market incumbency in Asia-Pacific, and is focusing on expanding its geographical presence. While the company already has a strong foothold in the Chinese market, it is looking to strengthen its international presence, also facilitated by the acquisition of Panther Express. Key developments CDNetworks annouces Dynamic Network Accelarator to speed remote user access (July 13, 2011) CDNetworks announced the availability of its Dynamic Network Acceleration solution that enables enterprises to extend, accelerate and scale applications that traverse both the enterprise LAN and public Internet. CDNetworks and Dora Telekom of Turkey announce strategic partnership (Dec 14, 2010) CDNetworks announced a strategic partnership with Istanbul-based Dora Telekom, according to which Dora Telekom will deploy and sell the CDNetworks Web Performance Suite services to customers within Turkey. CDNetworks continues Its China business expansion (Dec 2, 2010) CDNetworks announced that China-based infrastructure provider TXNetworks will resell the CDNetworks Web Performance Suite to customers within China. CDNetworks launches a new application acceleration solution (Mar 9, 2010) CDNetworks launched a new content delivery solution designed to accelerate the middle mile for dynamic web-based applications.

Key clients CDNetworks key clients are highlighted in the table below:

151

Table 29: CDNetworks key clients

Flixter simplyaudiobooks.com Perfect World Entertainment

Source: CDNetworks

stuidVZ LinkedIn Scribd

Virgin Blue Forbes tumblr.

BUSINESS INSIGHTS

DRM technology providers

The key DRM vendors include Adobe, InterTrust Rights System, Rovi (initially known as Macrovision), Microsoft Contentguard, and IBM. Outlines of these companies and their DRM offerings are discussed below.

Adobe
Adobe provides its users with its Content Server 4 software, a server based solution which digitally protects PDF and EPUB eBooks for Adobe Digital Editions software. It provides users with multiplatform support encompassing mobile devices, eInk, smartphones, and tablets. It also allows users to host and manage electronic books on their existing infrastructure, and supports third-party solution providers. The key features offered by Content Server 4 include: Industry-standard file formats: Supports eBooks in formats such as PDF or EPUB (a reflowable open standard for digital eBooks). Content expiration: Allows publishers to make eBooks available to readers only for a particular time period. Desktop and mobile support: Allows users to manage DRM protected eBooks on Mac OS, Windows platforms, and mobile reading devices.

152

Assigns permissions: Allows publishers to assign print, copy, and expiration permissions on eBooks. Multichannel support: Allows users to distribute content to multiple retail and library websites. Security: Leverages the latest encryption technologies. Convenient administration: Facilitates content server management though APIs or administrator console.

InterTrust Rights System

InterTrust helps users create user-managed rich media products and services. It develops and licenses intellectual property, and helps independent parties to interact over distributed networks. It holds over 100 patents and has approximately 300 pending patents worldwide. Its DRM technology includes two platforms, described as follows: Octopus DRM Architecture: Octopus is a toolkit for developing a rights management engine, and allows developers to design and implement flexible design environments which can be applied to applications such as enterprise document control, consumer media copyright protection, and other systems requiring distributed governance and information control. The Octopus DRM Engine evaluates a given set of conditions and determines if content access should be granted. NEMO (Networked Environment for Media Orchestration) framework: NEMO provides a messaging framework for interoperability between different DRM systems leveraging service-oriented architectures (SOAs). It combines SOAP web services with SAML authorizations, and helps in exchange of messages with appropriate protection.

Rovi (Macrovision)
Macrovision, which changed its name to Rovi in 2009, provides digital entertainment technology solutions. It provides users with guidance technology, entertainment data, content protection, and content networking technology, and claims that approximately 111 million subscribers and 91 million consumer electronics devices use the guidance technology. It is headquartered in Santa Clara, California and has 1200

153

employees. In 2009 it acquired Muze, a database of music, video, books and videogame metadata, for $16.5m. Rovi offers the following capabilities to different user segments in the media and entertainment industry: For CE Manufacturers: Builds digital home software technology solutions that can sync with each other, allowing CE manufacturers to connect consumers to digital entertainment content across multiple digital home entertainment products. For Service Providers and Advertisers: Provides interactive program guides (IPGs) for end-users, which helps users to find and record TV content. For Online Stores & Portals: Provides descriptive content, consumer websites, and metadata and media recognition capabilities. For Content Producers: Offers anti piracy protection for Blu-ray discs and DVDs. For Developers: Offers media-centric web services which facilitate developers to launch connected products.

Microsoft Contentguard
A provider of open, interoperable DRM solutions, ContentGuard was spun off by Xerox in 2000 and is now jointly owned by Microsoft, Thomson, and Time Warner. The company provides solutions for digital content distribution. Its IP includes approximately 240 issued patents and 170 applications are pending worldwide. Some of the key functionalities of its license programs are highlighted below: License programs provide access to approximately 240 issued patents Provides design freedom for licensees Provides technical and IP assistance in implementation of DRM solutions Does not support an individual technology and provides implementation-neutral approaches to DRM systems.

154

IBM
IBM provides users with the Electronic Media Management System (EMMS), for digital delivery of assets, allowing content distribution through satellite, broadband, wireless or cable networks. Its digital rights management features allow content owners to control asset usage. Its system is primarily leveraged for electronic distribution of music, and can be adapted to distribute other digital media. EMMS, a software tool, also allows users to prepare and deliver digital media through open networks.

155

Appendix
Methodology
Primary research
Interviews both structured formal responses and informal discussions were conducted for this report with content delivery network vendors.

Secondary research
The secondary research carried out for this report covers the following: Company reports and filings: The financial disclosure reports and fillings of content delivery network vendors were referred to understand the vendor strategy and market nuances. Press releases and articles: News stories and press releases covering the content delivery space were referred to for quantitative and qualitative insights. Ovum and Business Insights reports: Reports and data published by Ovum and Business Insights on the content delivery domain were refereed for this analysis. External market studies: in order to check and triangulate data for this report, a wide range of external market studies were used. These are too numerous to list, although key sources for triangulation included reports published by associations and other companies such as PwC, Newzoo Games, comScore, and eMarketer.

Glossary/Abbreviations
3DTV: Three Dimensional television 3G Technology: Third Generation mobile networks 4G: Fourth Generation mobile networks

156

CAGR: Compound Annual Growth Rate CDN: Content Delivery Network DRM: Digital Rights Management eBooks: Electronic Books ePUB: a reflowable open standard for digital eBooks HD: High definition HSDPA: High-Speed Downlink Packet Access LTE: Long Term Evolution MMOG: Massively Multiplayer Online Game MMORPG: Massively Multiplayer Online Role Playing Games OS: Operating System VoD: Video on Demand

Bibliography/References
Research papers published by the following associations and corporations were referred during the course of this research: China Software Industry Association (CSIA) comScore Video Metrix Entertainment Software Association FICCI-KPMG report on gaming Fuji Chimera Research Institute 157

International Federation of the Phonographic Industry Korea Electronic Publishing Association (KEPA) Newzoo games Price Waterhouse Coopers (PwC) Recording Industry Association of Japan (RIAJ) Telecom Regulatory Authority of India

158