Digital DNA

The rise of online video services has been fascinating to watch. Especially over the last 6 months. Even though video sharing sites like YouTube have lead video consumption online, it is actually the “quality” end of the market (dominated by Hulu in the US and BBC iPlayer in the UK) that has further fueled this growth.

Recent research (by Pew) has found that video watching is nearing epidemic levels among the younger age groups – 9 in 10 internet users in the age bracket 18-29 watch content on video sites. And 1 in every 3 watches video content every day.

The interesting stat I found in this report was that amongst those who watch TV shows or movies online, 23% of them have hooked their computer up to a TV. It is video content that is leading the fabled living room convergence. Make no mistake.

I was reading NewTeeVee’s quarterly review – it highlights two main facts: (i) we are buying more and more “living room” devices that are capable of playing online video (e.g. set top boxes, games consoles) – projections are for 57 million devices to be sold in 2009 in the US, and (ii) cable operators are sensing a threat and responding with their own authenticated services – e.g. Time Warner and Comcast with TV Everywhere.

This all translates to a healthy and active sector in terms of investment and opportunity. Which is refreshing in the current climate.

I can back this trend up with what we have been experiencing at The Filter over the last few months. Demand for our video recommendations and relevance technologies is at an all time high: whether from content owners, distributors or aggregators, they all have a pressing business need to find intelligent ways of connecting more of their content to their customers. Editorial and popularity-based suggestions are better than nothing, but our experience is that it is only when companies start using consumption data and sophisticated and matured algorithms that they get seriously exciting results in terms of increases in dwell time, video streams per visit and visits.

The battle for the living room is growing in intensity. The latest announcement from Warners on delivering movies to the Wii (in Japan) is not the first or last of its kind, but it did make me stop to think about video games consoles and which one makes the best living room hub.

So, the PS3 is from Sony. That’s a good start. So’s my telly. But, it is a big machine and my kids don’t really play that many games on the PS3. It does have a built-in BluRay player. But, seriously, I can’t remember the last time I bought a movie in physical form.

Xbox 360 is from Microsoft. Not a standard in home entertainment, that’s true, and the box is ugly IMHO. But some of the games are awesome (yes, I had to use an american hyperbole when talking about MS).

And then there’s the Wii. From Nintendo, a gaming giant, but no longer in the hard-core gaming sense, and more in the mass-market kind of way. Nintendo have revolutionised gaming. My kids (5 and 9) do not understand how to use a traditional joypad or joystick, they are used to just waving their arms around and using instinctive movement to control the game. The console is small, fits neatly in the cupboard under my TV and has an HDMI connection. It’s just me, but if I can get access to movies/catchup video on a box that also doubles up as my kids’ favourite gaming console, then I am sold.

ReadWriteWeb just posted a list of 18 music streaming services. Good list, though it is missing a few subscription based services (like Rhapsody) and services that are well known within certain territories (like We7 in the UK). It also doesn’t make a differentiation between the licensed services (legal) and the more questionable services.

My jaw dropped when Brand Republic posted a story about Michael Grade, Chairman of ITV talking about charging for video clips of shows like Britain’s Got Talent.

This a classic example of a highly experienced ‘traditional’ media guy struggling with the world of digital. The embarrassment of having missed out on millions of pounds of advertising revenue during the Susan Boyle craze (because Grade and his team had failed to agree on a revenue share deal with YouTube), has lead ITV to leap to the conclusion that the only way forward is to charge between 10p-50p per clip.

I just don’t get this thinking. So, you get a viral phenomenon like SuBo on Britain’s Got Talent. It drives up the ratings, it makes the show even more talked about an popular across the globe. So, next time, instead of finding multiple ways of monetising the viral/exponential growth by maybe doing exclusive distribution deals of the content with one of the many video aggregators or social networks or even providing the content on their own ITV embedable video player – all of which could be monetised through advertising – they are going to but a great big barrier to viral growth. All this will achieve is some very mediocre content revenues and a mountain of legal costs in protecting the content that will inevitably appear on the torrents and unofficial video sites.

The Telegraph have just put out a story about Microsoft launching its own music streaming/download service by end of July! Differentiating itself by using the Xbox as the entertainment hub to the home.

This is getting interesting – what with Virgin Media about to launch a music service in the UK, Nokia building up a head of steam on their Comes With Music strategy and We7 and Spotify gaining traction. It adds weight to my earlier ramblings about digital entertainment content being available everywhere on every device at any time turning the music/video into a commodity. The services that will win, therefore, will not be the ones that just offer access to millions of tracks (they’ll all do that) – it’ll be the ones that can integrate easily on all of our devices (computer, phone, TV, home stereo) and that can make sense of our tastes and moods to offer us the right music at the right time.

Last week saw the inaugural TechCrunch Europe Awards – baptised the Europas – announce its shortlist and winners. Judging by all the tweets on the day, it sounded like a great bash. I really need to go next year!

The thing that struck me most was the success of entertainment-based services (Spotify, Songkick, Songcloud are just three examples) and specifically the adulation that Spotify received. They were the clear winners on the night. I love seeing European companies getting traction and being rewarded for their success, however, I am a little perplexed that a service like Spotify, which is ultimately just another way of streaming content, had so much success. There is a real question mark over the long term viability of any content delivery service that doesn’t own its content – no matter how brilliantly intuitive or designed it is (and Spotify is both!).

My belief is the future will see us all have access to any music and video, any where and at any time. And the beauty (for consumers) and problem (for content services) with this is that if we can easily access all music on Spotify and We7 and Last.fm and any other newcomer in this space, what stops me from jumping from one to the other depending on what’s cheapest or coolest or best integrated? It’s not like you loose all of your music if you move to the next coolest music or video service, so what is it that keeps me there?

Last.fm developed a music social network, We7 have been attracting users by hosting exclusive content for a limited period and Spotify have focused on the simplicity of their UI and quality of the files. But is this enough to keep the technophile music fans from jumping ship next time another service launches?

Glastonbury was four times bigger in 2009 than in 2008… well, in digital terms, anyway.

The BBC festival website managed a record of 7.2 million video streams and the red button coverage on digital TV attracted over 6.1 million viewers over the weekend. Lady Gaga was by far the biggest act online – attracting 1.3 million streams compared to last year’s top act Jay Z who attracted just 119,000 streams…

So, why the increased interest compared to 2008? It’s not like there are 4x more people online, surely? It could be because they had three webcams placed around the site giving visitors a chance to watch from different angles. Even though that was cool, I think that the increase has more to do with the fact that the iPlayer has become even more prevalent in our everyday lives over the last 12 months.

Every week there’s a news alert about ‘ad funded music services’ Spotify or We7 reaching new milestones for user numbers. Last week Spotify announced 2 million UK users, this week it’s We7′s turn to announce 2 million unique users.

I am chuffed to bits to see two European-based music businesses growing so rapidly. These guys have clearly demonstrated that there is a demand for free (and legal) music which is effortlessly available on the web/desktop. This demand will ultimately lead to us having access to all entertainment content at any time on any device. There are still many distribution, rights and business model issues that need to be sorted before this happens, but it will happen.

So, once digital distribution has been sorted, the businesses that will thrive will be those who have also sussed out digital demand. In a world where everything is available to everybody at any time and on any device, demand is no longer based on what is available, but on what content is most relevant to us at that specific time. We will need smart filters that serve up relevant content to us based on location, time, entourage, past activity, tastes and mood.

That is why I am so excited about the work that my team is doing at The Filter. For the last 5 years we have been developing recommendation and relevance technologies for all types of digital content that use multiple inputs (consumption data, meta data, location, time zone, social data, etc…) to build models that enable us to work out the probability of what content goes with what situation – by using behaviour and mashing it up with meta data to provide a user with the most relevant content possible for them.

I am very proud that we have proven beyond any doubt that providing users with relevant choices of content leads to an increase in consumption per visit AND an increase in the number of visits because the user finds more content that they like at each visit. Over the last 12 months partners that use The Filter on their sites have seen uplifts in consumption of 15-20% based on increases in streams per visit and visits per week. And for us, it is just the start. As we get access to more data (using location on mobiles) and fine tune our engines, technologies like this will provide better content choices to individuals leading to more consumption.

So, the over 55s are signing up to Facebook in droves (an increase of 500% in the last 6 months) possibly fueling the exodus of younger users. Ironic that a site that was initially built for college students is being taken over by ‘silver surfers’. This could be a very good thing for Facebook. Let’s face it, there are more older people in the world who are less fickle and have more money.