It’s time for everyone’s favorite casual blog reading: an excruciatingly long but life-altering tech editorial.

Now is a time marked by transition in the entertainment industry. The old advertising model is providing diminishing returns. Upfront bids have been consistently down for the first time in their history. Traditional forms of media such as CD releases for music and cable television for broadcast programming are being supplanted by web content, streaming video, video on demand, DVR, and a rapidly growing catalog of other emerging forms of digital media. It is with these emerging media that we can expect a new model to gradually materialize. While advertising will undoubtedly remain as a player, it will not be the sole revenue-generating mechanism as before.

Among the major consequences of this shift is a rising need for both entertainment groups and business corporations to find new ways to partner in order to build brands and fund projects. Likewise, artists are in need of new ways by which to distribute their content, as the old ones are providing rapidly declining returns and are riddled with piracy issues.

So what are some of the notable emerging technologies through which artists may be able to distribute their content to consumers with both the artist and the technology host turning a profit? To answer this question I will mainly be calling upon the growing role of set-top box devices in providing media to consumers. As the replacement of physical media by digital content progresses, these devices have begun to launch themselves in the market for media distribution. Their major selling point is simply that they offer users instant enjoyment of high quality (often high definition) videos on their home televisions. While there are many players in this relatively new game, I will be focusing on three major types in particular: the up-and-coming Vudu box, the successful Apple TV, and the current generation of video game console marketplaces.

The Vudu box: the underdog on the rise.

The Vudu box was introduced to the market about a year ago and was received fairly well. Working for the company are veterans in the field from TiVo, WebTV, 2Wire, and other media groups. To start, Vudu, Inc. received $21 million in funding from venture capitalists Greylock Partners and Benchmark Capital. In 2007 the company signed deals with every major studio (including Fox, Universal, Warner Bros., Walt Disney, Paramount, and Sony) as well 22 independent distributors granting them access to over 5000 titles, with new titles added to the roster regularly. They also host a smaller library of television shows mostly from the Fox and FX networks.

The incentive for consumers to use this device is simply its efficiency and convenience. Movies become available the same week the DVDs are released and there is virtually no wait – viewing is instantaneous. The video library, while not comparable to rental giants like Netflix, is large enough to accommodate most viewers and is steadily increasing. The major drawbacks of the Vudu box are its inability to stream videos from the web and the short 24-hour video rental period. In an attempt to compete with the more successful Apple TV, Vudu has recently dropped the price from $400 to $295. We will begin to see in upcoming quarters whether this move had its desired effect.

The Apple TV: the power of a beloved brand.

Steve Jobs’ answer to set-top boxes also arrived on the scene in 2007. The Apple TV has been successful largely due to its ability to leverage the Apple brand name and the already thriving iTunes experience into a device that easily connects your television to the immense amount of internet video content out there. A wide variety of both free and premium videos is available through the device. Users can rent movies (also only for 24 hours), share photos, or listen to podcasts all from this box. They can also sync it to their iTunes library and experience the content on their TV as well as stream content from other libraries on a peer-to-peer network. Virtually any TV show or film produced by the major studios is available for download through the iTunes store. Notable among the television networks that have partnered with this system are ABC, Comedy Central, Disney, FOX, MTV, CBS, NBC, Nickelodeon, and TBS – and the full list is much longer.

Unlike the Vudu box, the Apple TV has the ability to stream media (for example from YouTube). Through its impressive list of capabilities, this piece of equipment holds a substantial advantage over the Vudu box for anyone familiar with the iTunes experience. However, this can also be a drawback for the Apple TV, as one of its major problems is the poor file support for non-iTunes video formats.

Video game console marketplaces: growth potential abound.

Users prefer to watch videos on their televisions rather than their computers because of the substantial quality difference. Naturally, a TV-based gaming device that has internet connection capabilities has great potential in distributing content beyond the games themselves. This is exactly what Microsoft has been doing with its Xbox 360 via the Live Marketplace, and Sony is attempting to start similar success with its Playstation 3’s PSN (Playstation Network).

The opportunities for media distribution over these devices can be categorized into two major groups: in-game and out-of-game content. The directions in which in-game content can head depend upon the new genres of games that will arrive in the coming years. Currently the music genre is experiencing overwhelming success with its Rock Band title, with over 6 million total songs downloaded by users as of last month. Artists are recognizing the unbridled potential in this distribution channel, as evidenced by Motley Crue’s move to be the first group to release a new single (“Saints of Los Angeles”) exclusively via Rock Band DLC (downloadable content). There are also entire albums scheduled to be tabbed out onto the game’s format and released in the near future, such as Nirvana’s Nevermind.

Out-of-game content is essentially any content sold that is not used within a game – in other words most content that can be downloaded from a set-top box. Microsoft has experienced huge success with its online Video Store and other marketplace sectors, which offer media in nearly every form: film, television, music, and photos are just a few. The company has partnerships with Paramount, NBC, MTV, TBS, UFC, CBS, Warner Bros., Lionsgate, Disney, ABC, MGM, FOX, and Comedy Central. While this catalog does not contain the support of every network and studio, it is extensive enough to draw in consumers who own an Xbox 360 and it is growing steadily.

The Playstation Network has not experienced the same level of success due mostly to a lower number of users (Xbox 360 beat the PS3 first to market and the PS3 original titles worth owning are virtually non-existent) and inferior interface. Nintendo’s answer to all this activity is its Wii Channels application. However, unless this system is given a drastic make-over it is unlikely to take off, as Nintendo has botched nearly all online endeavors it has tackled. For instance, take the Super Smash Bros. Brawl online connection issues and lack of voice-chat capabilities.

Video on Demand: the most dangerous competitor to set-top boxes.

Roughly 63 million homes in North America had VOD access in 2007. This number is expected to grow to 92 million in that region and 250 million worldwide by 2010. During this year the total world revenues from VOD are projected to reach $16 billion. Currently almost all of VOD content is distributed by the cable television industry, but it is expected to gradually share more of the market with broadband setups.

Overall it seems that video on demand is a more efficient, instantaneous, and easy to acquire service than set-top boxes. For most individuals who do not own a gaming console or are not tech-savvy enough to pick up an Apple TV or a Vudu box, their cable networks provide them with a subscription on demand service that essentially achieves the same result. It is as easy as adding another cable channel to your roster. The most complicated setup this service requires is the installation of a new cable box, which can be done for the user.

So how can the set-top boxes compete with such a service? The only conceivable way is to gain access to more original content than video on demand can offer and to provide this content earlier. Only time will tell if the partnerships Apple, Vudu, Microsoft, and the rest make in the future will allow for this to happen.

Set-top boxes: the prospective future of content distribution

It is difficult to say who will ultimately win in this struggle for set-top domination. Will it be Apple TV with its strong brand and compelling interface, up-and-comers like Vudu, Inc., or established companies like Microsoft and Sony that are using their consoles as Trojan horses into the digital media distribution marketplace? Or will video on demand eventually crush the set-top box industry? Ultimately whoever wins will likely be determined by the following factors:

1) … 1. Content is king – the best content and the most content brings success – a platform that is the first to get the most amount of quality content will gain the attention of users. For example, if Vudu were to add I Am Legend to its digital catalog before the film’s release in the DVD format, users would undoubtedly be drawn to the distribution.

2) … 2. Relationships with networks, studios, record companies, and individual artists are essential for gaining access to content and keeping the catalog up-to-date. This factor in particular is where agencies such as William Morris can be extremely helpful with its vast amount of connections to entertainment groups, business corporations, start-ups, and individual artists alike.

3….. 3. Marketing and distribution of the boxes themselves – how smoothly and efficiently the set-top boxes can be placed in the homes of consumers will affect both the profitability of the creating company as well as the desire of the user to acquire the service. Doing so may be easier for established brands like Microsoft and Sony whose gaming consoles already serve as distribution channels, but it could pose more of a challenge for smaller companies like Vudu.

It will be fascinating to see how these set-top box services currently in their nascent stages will grow, specifically with regard to the role they will be playing in the distribution of content. There is an enormous amount of potential present to say the least. Let us hope that this potential is realized in the years to come.


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