New Research Shows Digital Distribution Technologies Coming Into Their Own

A January 2007 report from Oppenheimer titled: "The Digital Consumer: Examining Trends in Digital Media" strongly supports the need for new digital distribution services.

Excerpts from the report:

· Content not likely to be ad-supported; protection of it continues to be a necessity. Supplanting revenue derived from content purchases and subscription would amount to incremental $60bn spend on advertising (to make the chain whole), in our opinion. It is unlikely, we believe, for such a shift to occur over the next several years ("the economy cannot absorb such an increase in advertising spend"). Therefore, it is our view that content protection will remain a necessity - in order to enable monetization of content in terms of purchases and subscriptions. Even with advertising supported content, some level of protection will still be needed to ensure that the two are not separated.

· Back office infrastructure key - for managing distribution of content. We believe that technologies for protecting content are likely to evolve into systems over the next several years where they are tightly integrated with back end services of content owners, seamlessly integrating with billing, reporting functionalities - and thus offering a more complete business solution than the one provided today.

· Consumer owns the distribution - not Microsoft, Cisco, or Google... In our opinion, distribution of digital content to a consumer is not likely to be "owned" by any of the players that are currently, seemingly, vying for that position - but rather by consumers themselves. Consumers are likely to decide whom they will "let into their living room," whom into their "music library," how they will want the two to interconnect, etc. It is not likely to be any one of these companies that is likely to be able to dictate to consumers their behavior; industry is 25 likely to evolve with consumers showing to industry participants how they want them to interoperate.

• ...and user generated content (UGC) services become a major distribution channel for commercial content. 2007 is likely to be marked as the year in which music labels, movie studios, book publishers and others embrace MySpace, Facebook, YouTube and other UGC services as distribution partners for their content.

· P2P enters mainstream mainstream "business as usual." Though it may seem paradoxical to claim that peer-to-peer (P2P) has not been a part of the mainstream among the user community (given millions of them who have used various services over the years - starting with the original Napster, also KaZaA, etc.), P2P services have clearly not been the distribution channel of choice for commercially oriented content owners. We believe this is likely to change in 2007. We believe during the year, services such as BitTorrent (and others) are likely to emerge as distributors of premium content with significant commercial value - and we anticipate their role only to increase in subsequent years.

· Adoption of digital rights management/content protection an important catalyst. Content owners need to protect content - and their inability, currently, to do so effectively - remains one of the barriers to more ready distribution of online content. DRM that can effectively protect content owners while not harming users or preventing legitimate uses of content will greatly expand digital content distribution.

· Advertising budgets continue to move online. Online advertising is likely to account for only 7% of overall advertising in 2006. With advertisers' budgets "following" consumers' (time) spending habits - and thus following them online - we anticipate online advertising is likely to account for 9% of overall advertising in 2007.

· Continued growth in online advertising. We anticipate 30%-35% growth in online advertising in the United States in 2007 (compared to 35% growth in 2006) and 35%-40% growth internationally. Though growing faster internationally, we anticipate online advertising markets outside the US to remain smaller compared to those in the United States during 2007.

Wow, maybe this stuff we have been talking about for years is finally happening. Stay tuned.