(small section on 3D and sports)

This whitepaper analyzes the key challenges and opportunities for organizations involved in digital entertainment. The research also provides market sizing and forecasts of digital entertainment content and service revenues, including video in theatrical, packaged goods, pay-TV, and online. In addition, the research identifies US household penetration of key digital entertainment devices, such as networked consumer devices, game consoles, and media center PCs. The research segments consumer groups by power user, social user, and passive user.

Executive Summary

TV sets, Blu-ray players and video game consoles are already shipping with built-in network connections. As consumers become more adept at the use of these products, content owners will be able to connect directly with their end-users. This creates challenges for “middlemen” that aggregate and distribute content, such as cable TV, satellite TV and telcoTV (IPTV) service providers. However, traditional Pay-TV services are not going away, and up to half of consumers still prefer these tried-and-true methods. The new markets will not end the old markets. In addition, most consumers are also already heavily involved with mobile services. Cellular networks not only know who is on a call, but where that person is, thanks to global positioning systems (GPS) built into handsets. Social networks and games will further disrupt entertainment. New technologies enable video on a TV screen to be overlaid with enhanced content from the Internet. Semiconductors from Broadcom, ST, and Intel provide advanced graphics capabilities alongside multi-core processors. Texas Instruments, Freescale, NXP, and Qualcomm have low-power products that bring similar capabilities to smart phones and other mobile devices.

All of this connectivity directly between content owners and their audience creates unprecedented opportunities to engage customers 24/7. But the audience is always going to be a moving target. Existing Information Technology (IT) infrastructures are not set up to handle the surge in new applications, nor do they scale up to support tens of millions of users generating billions of transactions. The entertainment industry is going to need to re-engineer their IT systems, interconnect with content delivery networks (CDNs), enable advanced advertising capabilities and create entirely new interfaces with their distribution partners.

Companies that make the right moves can tap into $10 billion in revenue opportunities made possible by the growth of digital electronic entertainment. Those that don’t will be left on the sidelines.

A new ecosystem for entertainment is evolving that creates five new dilemmas:

• How to dramatically improve how content is created and managed using a “lean” approach
• How to protect intellectual property as new usage models come into vogue
• How to guarantee that the consumer experience brings customers back for more
• How to manage a wide variety of business models to optimize revenues
• How to leverage what is learned as these new approaches are implemented

Table of Contents

• Executive Summary
• Digital Entertainment Revolution
• Information Technology Becomes Strategically Important
• Changing Consumer Expectations Don’t Shut Down Existing Services
• Web-to-TV Changes Everything
• Threat to Traditional Revenue Streams
• Re-Alignment of Business Models, Competitors and Value Propositions
• The Movie Industry as an Example
• What We Think Happens between the End Points
• The Shifting Digital Entertainment Ecosystem
• The Digital Entertainment Value Chain
• Media/Content Creation Now Includes Direct-to-Internet Approaches
• Video Games Well Positioned to Benefit from the Digital Transition
• Sports Leagues as a Leading Driver of 3D Technology
• The Television Broadcast Community
• Professional TV Content Moves Direct-to-Internet with Multiple Versions
• Media/Content Aggregation & Packaging
• Original Programming, High Definition, and VOD Add Value to Multi-Channel Networks
• Movie Channels as a Special Case of Content Aggregation
• Packaged Goods Subscriptions as a Special Case of Content Aggregation
• Media/Content Distribution10
• US Households regularly Using Pay-TV VOD or Broadband On-Demand Services
• Broadcast TV Ad-Supported Online Video Services
• Pay-TV Ad-Supported Video-on-Demand Services
• Devices & Technologies
• Capabilities, Features
• Pay-TV Services Will Also be Streaming Online Videos through Set Top Boxes
• Hybrid Broadcast and Broadband Emerging in Europe
• Consumer Experience
• Consumer Behavior: Power Users, Social Users, Passive Users
• Not All Consumers are going to be On Board with the Changing Technology
• Social Users to Be the “Sweet Spot” for Entertainment Initiatives
• Multitasking: Today—a Laptop or Netbook, Tomorrow—a Smart Phone or iPad
• In-Stat Summary: Up to US$10 Billion is on the Table by 2013
• Influence & Impact on Media Companies
• Select Strategies that Map Today’s Assets into an Electronic Future
• Begin Work on an Automated Media Exchange
• The Ability to Track Individual Consumers for Individual Usage is Critical
• The DECE and Disney’s Keychest Approaches Require New IT Infrastructure

List of Tables

• Table 1. 2008 to 2013 Movie Industry Revenue Stream End Points (US$ in Millions)
• Table 2. 2008 to 2013 Households Regularly Using “On Demand” Viewing (in Millions)
• Table 3. 2008 to 2013 Ad-Supported Online Video Revenue Stream End Points
• Table 4. 2008 to 2013 Ad-Supported Online Video Revenue Stream End Points
• Table 5. US Penetration of Network-Capable Consumer Media Devices
• Table 6. US Penetration of Game Consoles Used as Entertainment Hubs
• Table 7. US Penetration of Media Center PCs Connected to TV Sets (in Millions)
• Table 8. Percentage of Users by Type: Power User, Social User, Passive User
• Table 9. US Broadband Households by Internet User Behavior (in Millions)
• Table 10. US Multitaskers by Gender and Age Group (Number in Millions by Age Group, Percent of Total in Age Group)

List of Figures

• Figure 1. US Movie Industry Sales and Rental Value Trend Lines (US$ in Billions)