If you possess longevity in a single industry, and keep running into your old colleagues at the same trade shows long enough, they begin to refer to you as 'doctor.' It's not that you have necessarily earned this degree through normal methods, but your sustained interest and passion for a single area of endeavor assumes that you have attained expert status in the field or can speak with considerable authority on its related subjects.
Having an 18-year career totally centered around interactive media technologies and content delivery, I have learned a thing or two about the industry, where it has been, and where it is going. In my last position as VP of Marketing for the Interactive Multimedia Association, (IMA) we used the moniker, "The Best Minds in Multimedia," coined to refer to many involved with the IMA who had been around the industry long enough to be able to separate market hype from reality, to see beyond the "cool" aspects of products being introduced to the marketplace to understand how business was really being generated using those technologies to deliver meaningful content to consumer and business customers. Right or wrong, I have reached the point where I am entitled to my opinions on where the marketplace is headed, and occasionally I am given the opportunity to make those opinions known.
The best news about interactive technologies as a whole is that the marketplace for their use has now finally reached the point where it is measured in billions of dollars annually, and few challenge the merits of well-designed interactive content delivery over traditional linear methods. The benefits have been proven time and time again, and the overall industry focus has finally shifted from what we all once called 'the 'multimedia industry' to specific vertical market applications in education, training, marketing, advertising, and information delivery. All interactive media technologies, both hardware and software, are simply enablers to the development and distribution of content. They are tools that can be used well or poorly, and how they are applied often spells the difference between a solid corporate return on investment or simply a cost center.
While the 'industry' has now evolved into a strong vertical market focus, most pundits who observe and analyze this arena still come at it from a technology or product class focus. Hence the preponderance of articles focusing on trends in DVD and DVD-ROM, CD-ROM, the Internet and Intranets, broadband services and a plethora of less prominent but still important advances in other technologies that will be altering life as we know it over the next decade. Far be it for me to buck that trend because it focuses on the different general categories of interactive media distribution and delivery. In the paragraphs that follow, some of the latest trend information in each key area will be examined, along with a few forecasts based on my own crystal ball. I've been gazing into it a lot lately, and it has formed some pretty solid images of what the next few years will be like. Some of my own predictions are provided with tongue firmly planted in cheek; you'll have to figure out which ones for yourself.
DVD and DVD-ROM
You don't need a crystal ball to know that DVD has arrived. It has entered the marketplace, with manufacturers including Toshiba, Pioneer, Matsushita, Zenith and others having introduced both DVD-Video and DVD-ROM players over the last few months, and studios including Warner Home Video and Sony announcing over 60 titles to begin arriving in stores this spring. I even received my first flyer from my local laserdisc dealer announcing the first Pioneer consumer model in early February. It's only $599 although the average price a consumer is willing to pay is $430, according to International Data Corp. (IDC). You can get a DVD disc manufactured by Warner, Pioneer, Nimbus and others even though pricing for mastering and replication is not yet firmly established. And there are a host of service providers including NB Digital Solutions, Sonic Solutions, Pacific Ocean Post, LaserPacific Media and DVCC ready to provide compression, encoding, authoring and other post-production services for your projects. Cool. It's here and now and I can get one made. What's less clear is how the marketplace is going to develop.
On the consumer side, more players and titles will certainly be introduced this summer and fall, with 63% of publishers expecting to offer titles according to IDC. Other surveys indicate many publishers will wait until at least 1998 to port titles to the new format. Most of the titles in 1997 will be movies with only a smattering of interactive titles even being announced, not to mention actually available for purchase. I've only seen one interactive title announced thus far, "Animal Planet" from Discovery Channel Multimedia, which allows users to explore eight distinct ecosystems and their hundreds of inhabitants. The primary reason so little will reach the market in 1997? Good old return on investment and the "chicken and the egg" problem. Most developers want an average installed base of over two million drives before they will entertain serious DVD and DVD-ROM efforts, and many forecasters say that will not happen until at least early 1998.
On the industrial side, DVD-ROM has amazing potential. It can deliver capacity unheard of on CD-ROM at bandwidths the Internet cannot hope to provide for years to come. It really is a huge 'bit bucket' from which all forms of rich, compelling interactive content can be poured. That will not come cheaply, however, as content development costs for truly high-quality audio and video and sophisticated interactive interfaces will increase almost as much as the capacity between CD-ROM and DVD-ROM. Those offering mastering and replication services will also have to educate publishers regarding their costs. At a recent conference a manufacturer commented that "DVD and DVD-ROM mastering and replication prices will be somewhere between CD-ROM and industrial laserdisc pricing." Most of that audience nodded thinking that was OK because their mind-set was mostly CD-ROM. They figure it will be close to CD-ROM pricing. Guess again. With everything involved in the much more critical process, the pricing will be much closer, at least initially, to industrial laserdisc pricing (resulting in substantial increases in the resulting retail prices of titles). Businesses with training and other applications requiring the capacity and/or bandwidth of DVD-ROM should be able to justify the investment. Many others will be forced to wait until the installed base and overall demand for DVD reaches an initial critical mass where some of the savings can be passed on to customers.
The price of the drives and the amount of content available will not be the only determining factors for DVD growth. A host of other factors will also affect the rate at which DVD and DVD-ROM are accepted, including consumer platform stability and interactive feature sets included, hybrid DVD-ROM/Internet application standards, multimedia data exchange protocols for content development, and intellectual property protection solutions. And mastering and replication costs will need to remain competitive with CD-ROM pricing to entice major publishers to make the switch.
My crystal ball says look for 200-300 consumer titles being available this Christmas with players as low as $500, and a limited but significant number of demonstrations and actual breakthrough applications on the DVD-ROM side in the next year. DVD will not surpass CD-ROM sales on either the consumer or industrial side until the year 2000 or later, but it should start to show up as a 'standard option' (?) on many PC models beginning in mid-1998. Apple seems to be the first out of the starting gate, having demonstrated a DVD-ROM Macintosh prototype at Milia '97.
CD-ROM has become both a commodity and conundrum all at once. With sales of over 50 million drive units last year, and the trend towards 10x and up drives being bundled with almost every PC sold to consumers these days, CD-ROM has certainly become mainstream. However, with the installed base always in flux in terms of speed and effective data throughput, developers and publishers are forced to choose between developing to the lowest common denominator or pushing the interactive multimedia envelope and potentially limiting their audience. Combined with higher than desired distribution costs, he result has been far less profitability in this sector than many had hoped for. Scores of publishers have gone out of business or been absorbed by larger competitors with the muscle to garner shelf space at retailers. The exception to this has been game system manufacturers because their CD-ROM titles can be more tightly coupled to their installed base as it migrates from one standard to the next. Their competition in this sector comes from PC games as a whole, although most consumers still desiring only to play games are opting for a dedicated game platform rather than a costlier PC.
What's odd but also CD-ROM's greatest opportunity in 1997 and for the next few years is that the growth in the Internet has opened the door for CD-ROMs to be an excellent 'gateway' to Web-based content. The largest growth sector for CD-ROM titles over the past year is hybrid CD-ROM/Internet applications, growing from 720 titles to a projected 3,500 titles, according to InfoTech. This is breathing new life into a format that was not originally designed to deliver very rich media experiences. It can now be the doorway to an ever-expanding world-wide library of information and entertainment experiences.
CD-ROM drive and title unit sales should continue to grow over the next two years, probably flattening out and starting to decline around the year 2000 as DVD and DVD-ROM take their place for both stand-alone and hybrid applications involving the World Wide Web. A few savvy publishers will also forego today's specialty channels of distribution with their attendant costs of entry. Traditional models involving mass market retailers should lead to greater profits through volume sales, at lower consumer title price points.
The Web, Intranets and Online Services
The last year was certainly 'The Year of the Internet' or the year when many industries suffered from "web-lash" as John Barker from Inside Multimedia put it. The Web not only altered the business strategies of almost every company engaged in providing interactive media content, but it affected how most software developers, publishers and hundreds of consumer and industrial goods and services providers marketed their products.
On the technology side, the World Wide Web became the realization of interactive media's promise: a stable, relatively easy to use publishing format delivered over an existing and largely stable infrastructure. What it lacked in actual rich media experiences it made up for in its depth and breadth of information available. It's gargantuan growth in the number of people constantly online led to its being called the "World Wide Wait" as millions of user with low-bandwidth modems clogged host providers with access. But even this bottleneck has not been significant enough to slow down activity to any measurable degree.
Many say the Internet is like the 'World Wild West,' with no law close by and anarchy prevailing. Some say it is heading towards a great crash as its foundation begins to crumble under its own weight. Sure, technical problems exist, but they are being addressed in the same established forums that established the existing Internet standards. And, yes, there are browser wars that will continue over the next few years and probably beyond. And what frequent user of the Web hasn't been frustrated by the lack of the proper add-in component with which to view or hear a particular site's content? Those are normal competitive battles that will be resolved by user choice.
The numbers and the product introductions certainly indicate where things are headed: . Jupiter Communications indicates that the number of U.S. households with Internet access more than doubled in 1996 to 14.7 million. They predict a 55% PC penetration in the U.S. by 2000 with over 36 million households online. Jupiter also predicts that non-PC devices will account for 16% of that access, with television emerging as the premier non-PC access device. . The Gartner Group predicts total Internet users to swell from its current 30 million to over 100 million by the end of 1998. . Almost every major online service and Web software provider has aligned itself with one sort of electronic transaction solution or another. . The advent of 56Kbps modems will make consumer access faster and perhaps more reliable. Some already prefer "WebTV" branded products simply because of their perceived speed increases. . The Yankee Group says web 'pushing' of content onto PC user desktops represents only $10 million in revenue today but will grow to $5.7 billion annually by 2000. (Stock Tip: This is likely to be the hottest trend of 1997, so find your next mini-Netscape now.) . Web and online advertising will grow from less than $350 million in 1996 to between $2-5 billion by 2000, according to reports from both Jupiter and SIMBA Information. . The commercial Internet market will grow from $2.5 billion in 1996 to over $24 billion by 2000, according to the Business Research Group. . Killen and Associates forecasts that global voice/Internet services will top $63 billion by 2002, up from $741 million in 1997, a clear indication that POTS (plain old telephone service) providers cannot ignore the Internet's growing power. These forecasts all add up to the following conclusions: 1) widespread consumer acceptance of the Internet, 2) major changes to traditional ways of doing business, and 3) massive opportunity for breakthrough applications and services.
The numbers also indicate some the challenges facing the Internet: . Forrester Research's report indicating that the average content-based Web site realizes $3.9 million in losses before turning a profit. . Forrester also predicts it will be the year 2000 before a critical mass of 20% of the U.S. adult population is online and the average Web site can sustain itself. I get their point, but defining an 'average' Web site is certainly open to debate. . O'Reilly states that less than 1% of today's public Web sites are able to host secure transactions. . The Internet Stock Index declined 38% in 1996. . According to ActivMedia, 69% of all Internet marketers lost money last year, . These numbers suggest an overvaluation of many Internet-related companies (no surprise to many), a lack of sound business plans related to most online marketing and, more importantly, a lack of good tools with which to measure the success of online efforts. We'll see many efforts in 1997 and 1998 keyed to that last point: determining with increased certainty the degree to which online marketing efforts actually generate sales, either directly through the Web or via other means. (Author's Note: Virtually all of the market research firms referenced in this article can be reached at: http://www.cyberatlas.com)
Because of the Web's capabilities and the amount of corporate users with access, the growth of Intranets will continue at a phenomenal rate with 1997 investments in hardware, software and development more than double that of 1996. They'll be used for internal corporate communications, training, worldwide product databases, inventory tracking, employee data gathering, collaborative work efforts and other bottom-line computing tasks. In a very short period of time, the corporate Intranet will be as indispensable to the work force as the computer itself.
What else is going to happen to the Internet over the next two years? So much that it is hard to include everything, but here's what's in the crystal ball: . Secure transaction solutions will become acceptable to large numbers of users, actually reaching the point where electronic purchase are preferred. People will say, "I like this approach best because it takes humans out of the equation." Since Web sites are still created by humans, there will be some errors, but it won't be from the phone operator getting your order wrong. You'll get to do that all by yourself. . More and more customer service, personnel intensive operations will transfer from call centers to Web 'centers' run by virtual receptionists routing your inquiries to the proper page. . Internet radio will afford local stations a worldwide audience, but they will have great difficulty getting sponsors to understand why listeners 10,000 miles away should be counted in establishing their ad rates. . Multimedia on the Internet will actually become more commonplace as the installed base of add-ins and hybrid CD-ROM site 'shells' increases significantly. It will give a new definition to "frames." You won't know whether the streaming video is coming from your CD-ROM or the Web site. (Actually, depending on the speed of your access, you will probably know, but you won't care if the content is more compelling.) . Your next case of Coca-Cola may contain a coupon for a free month of ISP access - if you buy a pair of Nike shoes and spend $40 a month on long distance service. Price Waterhouse (from whence the original of this analogy came) predicts lots of strange bedfellows will pop up as the Internet continues to transform from a venue where information was freely given to the a home where fee-based and ad-supported services are the norm.
No discussion of the Web's impact can be complete without mention of the dedicated online service providers like AOL, CompuServe and the Microsoft Network. The jury is certainly out on whether AOL or CompuServe will be able to win the battle for subscribers while they constantly try to add proprietary content value in relation to that offered by the entire World Wide Web through local Internet Service providers (ISPs). I'm not certain how well either of these companies will prosper by the year 2000 without some significant changes in business approach. While Microsoft may have been a bit late in embracing the Internet, their approach more closely bridges the online service/Internet gap and enables them to be viewed as more of a total service provider.
What everyone should remember about the Internet, Intranets and online services is that, at least for commercial entities, they are about aiding and abetting commerce. There will likely be millions of Web sites in the next few years that will be simply 'BYC' - because you can, with little reason for their existence except the free speech rights of those hosting the sites. Don't get me wrong; there is a place for all such sites. But, for businesses that presumably have objectives their Web sites and online presence are designed to help support, the trend in 1997 and beyond is towards return on investment and actual sales. This year will be "the Year of Online Advertising" and 1998 might be "The Year of Online Commerce" when the efforts really begin to pay off with significant, measurable sales attributable directly to online efforts. We're already close to being able to buy a car over the Internet and have it delivered to our door. We ain't seen nothin' yet - watch and see.
I do have one question, however, regarding the entire online world. What happens after the year 2000? None of the researchers want to venture past that year in their forecasts. Is it because it's a new millennium and all the rules break down? Or is it the 'Year 2000 Problem' that might bring all software to its knees and render the Web, and much of everything else, useless? Hard to say. My theory is that in 2001 a virus named "HAL" invades every computer online and 100 million computers start singing "Daisy." That's when the fun really begins.
This area of interactive media has been so downtrodden for the last eighteen months that it can only improve over the next few years. Over 200 trials between 1994 and 1996 proved that consumers are willing to pay something to receive enhanced interactive digital services over their TV sets, but nobody has yet indicated very strongly exactly what those services should be and what they are worth to the average consumer. What we do know is that most large cable operators and telephone companies are not willing to risk current profitability to create the huge new infrastructure necessary to deliver extremely high-bandwidth, two-way interactive broadband services.
Some researchers, like Forrester, nevertheless predict that the interactive television market will hit $12.8 billion by 2002. Kudos to Forrester for making predictions beyond the year 2000, but I wonder if it is because they have to go that far out before this market becomes significant again. Of that $12.8 billion, Forrester predicts $5 billion will come from on-demand services and advertising will account for another $1.7 billion. Online shopping is in the distance at only $400 million. The numbers for true interactive multimedia TV experiences (the 'true 'promise' of interactive TV) are, I am sure, much lower than that. Forrester does predict that consolidations of major cable companies will result in a shallow, and therefore more profitable, market. That I believe.
What are we likely to see in the near term? First, the move to the digital standards that are being influenced by the rampant success of direct broadcast satellite (DBS) and the forthcoming high-definition television broadcasting. That will take care of a good portion of the infrastructure switch, but not all of it, and that alone will take several years. In the meantime, consumers will see incremental improvements in the variety of interactive and on-demand offerings through their local operators and through satellite-based providers. This will still be mostly "one way" in that the consumer will use intelligent set-top boxes and other hybrid devices to select mostly linear offerings, some digital and some still analog, in an on-demand or near on-demand (like every quarter hour) fashion. That will keep consumer pricing and corporate profits acceptable.
The other significant activity for 1997-98 will be the migration of Web TV products from more of a high-end toy for videophiles to a standard feature offered by local service providers. But this will not happen without better solutions to cope with television's reduced resolutions. I'm not sure there is a great business case here when PCTV products are just around the corner, providing the computing power and screen resolution required for 'family room Web browsing.' Of course, I'm not convinced that mass quantities of consumers are really pushing for that experience.
PDAs, PIMs, & other TLAs (3-letter acronyms)
I feel compelled to mention a less glitzy but still significant area of technologies that are also evolving. I refer to such 'interactive' devices as the cellular phone, the pager, personal digital assistants personal information managers and network computers. The fact that these largely wireless technologies are being enhanced to deliver increased amounts of digital information on demand is also affecting the interactive media landscape and creating significant new business. Motorola, Zenith, Microware and others are offering scalable real-time operating software-based solutions to enable such devices to deliver more complex graphics, Internet access, corporate database and inventory access, stock quotes, sports scores and other low-cost corporate communications requirements including faxing and e-mail. Voice recognition and handwriting interfaces are being integrated as we speak. Internet tuners are being launched with software architectures that allow them to be incorporated for only a few dollars per unit. It may not be sexy, but it sells, and it's part of the expanding universe of interactive communications. We may not see a voice-activated, retina-projection "WebPhone" until (dare I say?) at least the year 2000, but it'll happen.
One of the best jokes of 1996 was, "Why was God able to create the earth in six days?" The answer? "Because He had no installed base." This underscores both the legacies many companies involved with interactive media must overcome in order to be successful, and how slowly real change will occur. There will be major casualties on the information highway and in cyberspace over the next several years, as lean, aggressive startups challenge entrenched players, and advanced hybrid products dissolve old markets while creating new ones.
It has also been said that life in cyberspace is measured in 'web weeks,' emphasizing how quickly content providers must respond in order to stay fresh and engaging. One content provider recently described each week of her own struggle to maintain the large Web site for a highly competitive manufacturer as a dog year. That's a 364:1 comparison which seems a bit extreme, but the fact is that interactive communications have forced many businesses to operate at warp speed or be crushed by the 'empire.' Both providers and users of interactive media must constantly challenge their own assumptions regarding their business models and how the technologies are being applied, because their competition will beat them to the next great opportunity if they don't.
My advice? Don't ask your staff, "What have you done for me lately?" Ask, "What have you done for me since lunch?" If they have a good answer, they're keeping their crystal ball tuned to proper corporate objectives and they should be making the right decisions regarding interactive media, regardless of which role they play in the landscape.
Ken Christie is an eighteen-year multimedia veteran. He is currently engaged in a specific consulting assignment while evaluating new career opportunities. He may be reached via e-mail at email@example.com. Learn about his background.
This document is also published in Interactive Insights: A MultiMedia Compendium, available through the National Association of Broadcasters or at NAB MultiMedia World 1997 in April in Las Vegas, NV.
Copyright 1997 by Ken Christie. Reprinted by permission.
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