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There have been a lot of evolutionary changes in how people use the Internet and computing technology but when it comes to direct forms of human interaction, things have moved slowly.  Despite advances in touch screens and voice automation we still rely principally on the decades old technology of keyboards and mice. We still do most of our web interaction through browsers.    Despite the vast increases in processing power when it comes to machine interaction, we’ve only moved in small steps.

The lack of innovation isn’t because existing technologies were perfect, or without need of improvement.  It’s just that technology changes faster than peoples habits.  When it comes to communication, we move slowly.  The QWERTY keyboard, after all, was invented by Christopher Sholes in 1874.  Click to Read More

One hundred million dollars buys a lot of iPhones, probably about two hundred and fifty thousand or so.  A hundred million also buy a lot of iPhone software development.  Just how much will be up to Kleiner Perkins Caufield and Byers (KPCB).  As part of Apple’s iPhone Road Map Day on Thursday the Sand Hill Road venture capital firm took the stage to announce the organization of a $100m investment initiative earmarked for developing applications and services for use with the phone.

$100m is a lot of money.  Pledging it all to software and services built around a single product sounds significant.  But while there is no question it is a strong endorsement of the iPhone’s potential, beneath the headlines the allocation may be less significant than it seems.  It comes down how venture funds work and a distinction in phrasing between a fund and a focus area.  

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The gaming industry is valued at $37.5b by some measurements and growing.  The Asian Pacific market is expected to be nearly $19b by 2011. 81% of American youth play video games at least a month. Despite such staggering numbers, if you read the words of Electronic Arts CEO, all is not rosy.  Games are becoming too complex, too involved and alienating the mass-market. Their producers are also failing to innovate. So said John Riccitiello in Yesterdays Wallstreet Journal where he was quoted commenting that the industry is "making games that are harder and harder to play" and that "for the most part, the industry has been rinse and repeat."  And he’s right. 

Statistics show the competition for leisure time and entertainment is incredibly fierce and even with convergence in hardware (which now include DVD players and Internet connections) helping expand the gaming marketplace in some ways, the same competition is requiring game publishers and developers to tread carefully; mistakes are costly. A missed opportunity to get a game to market (e.g. a gamble on the wrong platform) or a weak showing from a game with expensive development costs could be a heavy drag on revenues for months.

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In part one of a two part article published June 19th, subtitled, “Record sales are tanking and there’s no hope in sight: How it all went wrong ” Rolling Stone magazine indirectly decreed the end of the music labels (the Big 4 at least) and the end of the music business as the world has known it.

Quoted in the article, industry attorney Peter Paterno said unequivocally “the record business is over.  The labels have wonderful assets – they just can’t make money off them.”    The numbers presented support his, and the article’s, claim. In 2000, for example, the top ten albums in the US sold 60 million copies combined.  In 2006, the top ten sold only 25m.  Digital sales (of both songs and ringtones) meanwhile, while booming, are largely in single song increments where revenues and the margins are much lower.

It’s for certain, the industry, as it once was, is on life-support.  The Big 4 (Universal, Sony BMG, Warner, and EMI) control nearly 70% of music distribution but they’ve been caught between a mess of conflicting needs and ideologies: the competing demands of traditional retailers (who themselves fear the loss of their business), the interests of the artists, and, of course the entrenched thinking of the labels themselves.    It’s been a struggle to balance those interests and adapt to the changing dynamics of the music marketplace – particularly online sales. 

The question is, is Peter Paterno correct, and is the inference in the Rolling Stone article right?  Click to Read More

As far back as the middle of 2004, video game publisher Electronic Arts (NASDAQ:ERTS) was making moves to establish itself in China (and across Asia).  It’s since developed a substantial presence with a regional headquarters in Hong Kong and studios in Shanghai, Japan, Singapore and Australia.

Yesterday, EA announced it was buying a 15% stake in Chinese video game company The9 Limited.  The announcement is noteworthy, even if largely overshadowed by the more widely reported we’re-going-to-China news from private equity firm the Blackstone Group (which announced China’s national investment agency was making a $3b investment with them to buy a 10% non voting stake).

In the Electronic Arts deal, EA is paying $167m to gain its 15% share of The9 (Nasdaq: NCTY).  EA will also give exclusive licensing rights to The9 for the distribution of EA’s multiplayer FIFA Online game in China.  It’s a deal similar to one EA struck in South Korea with Neowiz in March (EA bought 19% for approximately $105m.)

China is a difficult market to understand and break into if you are aiming to sell products or services to Chinese consumers. (EBay, Yahoo and other companies have learned that the hard way). Not only are customer behaviors different (in gaming, for example, the market tends to favor multi–player online games -so called Massively Multiplayer Online Role-Playing Games (MMORPG) – much more than in the West), but there are also the Governmental and Regulatory bureaucracies to navigate.  Simultaneously trying to learn and manage marketing, sales and political considerations is not an easy task.

The EA deal seems to mark a new type of strategy for wishful corporate suitors. Rather than trying to break in like an adventure traveler with a backpack, a visa and a sense of adventure, Western companies are increasingly trying a more measured “Tour-Guided” approach.   They’re looking for partners who know the landscape and will guide them to the best places to visit.  For EA, the FIFA Online license deal is likely the first of many steps on that walking tour.  If it’s successful, I’d expect to see EA offer similar deals, or partnerships, on the release of other titles as well.

As far as the numbers go, China unquestionably presents a lucrative market opportunity.  IDC has estimated there were 31m online gamers in China in 2006 and Click to Read More

Everyday seems to have at least a few headlines about Google.  Much of yesterday’s Google-related news centered on the announced release of Google’s redesigned web analytics platform, Google Analytics.  The improved user-interface and tools made with the added assistance of the folks brought on in the acquisition of Measure Map will no doubt be a help to web marketers and web masters from beginner to pro. 

The torrent of news drowned out a small, whisper of information: Google has ported its RSS reader/Feed Aggregator, Google Reader, to work with the Nintendo Wii and the Opera browser embedded in it.  The Google engineers even went so far as to insure that it works with the buttons and interface of the Wii’s innovative controller.   News of the effort was mentioned on the Google Reader’s official blog

The original Google Reader is technically still a Google Labs development project and not a fully functional, supported service/feature.  The Wii, for all its strengths and popularity, is for now (for most users) a gaming device and not a home-media PC/Device or a platform for web surfing.   Combined, those facts mean the unannounced side-project to join the two is well below the radar – probably less notable than hackers modding Apple TV to run non supported video formats as reported in March.  Still, the effort at Google might prove meaningful, or at least a glimpse of the future.

For one thing, Nintendo has been active in adding functionality to the Wii beyond its highly demanded gaming abilities and user interface.  Back in January, Nintendo partnered with the Associated Press and other news agencies to provide news through the Wii’s integrated Opera web browser.  (See the Metue article here  for more info on that announcement).

It’s also no secret that Google, like many companies, sees’s a convergence of technologies leading to some form of set-top appliance integrating the Internet, the Entertainment Computer and our Television.  (Note: I use the term appliance and set-top very loosely, it’s far to soon to know whether streaming technologies, hardware, set-top boxes, gaming platforms, DVR’s or the other potential competitors will bring the best-in breed solution for making all this happen).

Google’s first major recognition of the value of gaming, and PC-TV convergence came a few months back when they followed Microsoft’s lead and bough an In-game advertising company.  In Google’s case – Adscape Media (see here for more information)

Google’s application of its RSS Reader/Personal news aggregator to the Wii may be nothing more than a group of engineer’s “amusement-project.”  There’s no reason to insinuate it’s part of a master plan being implemented at Google.  I’m not reading much into it.  I definitely wouldn’t speculate on an upcoming Nintendo and Google partnership, but the development is fascinating.

I’d love to check it out, if only the Wii wasn’t so hard to get.

Some will say 2006 was the year of Mergers and Acquisitions.  The big five Wall Street investment banks (Merrill Lynch, Bear Stearns, Goldman Sachs, Lehman Brothers, and Morgan Stanley) had record profits.  The total value of acquisitions topped $4 trillion, easily besting 2000’s record $3.3 trillion according to tracking firm Dealogic.  Private equity firms accounted for more than 18 percent of that total by spending more than $720b to take companies private.

As news and analysis of the year trickles out, some are reporting that these same firms have more than $2 trillion in buying power going in to 2007.    

A small sampling of deals from the past year:

Two Tech infrastructure giants bought themselves greater involvement in Internet media distribution:

• IBM acquired Micromuse for $865 giving it additional software for managing video on the web. 
• Cisco acquired set top box maker Scientific Atlanta for $5.3b, thereby positioning Cisco for IPTV markets.

Old school animation and new digital methods officially married:

• Disney acquired Pixar for about $7.4b thereby increasing its resources for digital animation and providing it with a stronger footing to compete against companies like Dreamworks Animation and Imagi.

Newspaper publishers considered consolidation strategies as online services continue to encroach on their traditional offerings:

• McClatchy acquired Knight Ridder for approx $4.5 plus assumption of $2b in debt, thereby significantly increasing its newspaper publishing

Internet video got competitive and Google went shopping for…just about everything?:

• YouTube (for $1.65b)

• dMark (radio advertising platform for $102m)
• Measure Map (blog analytics)
• @Last software (Sketchup c.a.d application)
• Jotspot (wiki’s)
• Neven Vision (biometric identification- for use with Picasa photo archiving)

Privacy makes management easier: Radio and Major media ranking and review companies went private:

• Private equity firms including KKR, Thomas Lee Partners and the Carlyle Group acquired the shares of Dutch conglomerate VNU with the intent to privatize the company and improve its performance.  VNU holds, among other properties, media research and ranking firms ACNielson, Billboard and Net Ratings.  The company also publishes the Hollywood Reporter, Adweek, Billboard and other magazines.
• In a separate, but huge, pending deal, private equity companies are trying to acquire Clear Channel, owner of over 1100 Radio Stations among other entities for over $18b

It’s not unlikely that in 2007, private equity firms will play an even larger role in the media and entertainment sector than they have in the past few years.  Established companies will continue to have to evaluate what represents core and strategic businesses amidst changing technologies and may seek to divest non core, or under performing, areas, or acquire other pieces for the future. 

Areas that generate solid cash flows like gaming, publishing, broadcast and content catalogs are likely to get some speculation and scrutiny.

Tomorrow, after I’ve had more time to think about it, I’ll have some analysis about what this might mean besides the obvious prediction that there will be a lot of M/A activity in 2007 and at least a few large private equity investments.