Media players from the Internet, TV, and publishing have converged on the digital content space, intensifying competition for a consumer base reluctant to pay for most content.

Consequently, players in the digital content sector are increasingly intent on monetizing their digital content services in any way they can, while at the same time investors and management turn the financial screws. The dynamic forces of competition, monetization, technology, and consumer behaviour are altering the digital landscape, leading to changes in the rules of engagement for the digital content sector. We take a look at a selection of changes in the digital landscape and the corresponding new rules of engagement for the digital content sector.

Online content and applications are increasingly not consumed on a PC

Several Ovum surveys underline a growing trend in consumers looking to access and interact with content on mobile devices compared with desktop PCs. This means that the ability to deliver multi-screen experiences is paramount, allowing consumers to access content in different modes – the more seamless, the better. This is becoming a key focus for a growing number of service providers, notably in the three-screen TV arena from the likes of Sky, Orange, Verizon, and Telefonica.

In future there will continue to be a core of all-purpose devices able to support a wide range of horizontal content and applications, but alongside this we will see growth in specialist device types, some of which will be dedicated to providing a premium user experience for one application category. Many of these specialist devices will also be sold with bundled connectivity in the manner pioneered by Amazon with its Kindle e-book reader.

New rule of engagement: Build multi-screen reach

In order to keep up with their migrating consumers, building multi-screen reach will be a new rule of engagement for telcos, which will need to ensure they have multi-screen capabilities and can deliver across fixed and mobile networks to a range of device types. If the service provider cannot deliver the right content to the right device, their customer acquisition will be handicapped.

The rise of the controlled content ecosystem

There is telco, media and online convergence up and down the value chain as players take stakes and buy-out rivals or promising companies in a bid to strengthen and extend their control over the digital content value system. The shining example of Apple iTunes aside, Comcast's acquisition of NBC Universal is another example of attempts to extend control over the content ecosystem.

New rule of engagement: Acquire SMART capabilities

Controlling content ecosystems requires what Ovum calls SMART capabilities. Acquiring SMART capabilities provides telcos with an opportunity to participate in the digital content sector and compete with controlled content ecosystems, rather than just incurring their traffic as a network cost. SMART refers to Services, Management, Applications, Relationships, and Technology. A SMART player successfully deploys value-added services, leveraging expertise in platforms, infrastructure, and applications to aggregate content and services to manage their distribution on behalf of content and service providers as well as the consumer. For these players, a key focus will be to acquire exclusive content, buy into content production or aggregation, or form partnerships to guarantee strong ongoing content relationships.

Content flood burdens the consumer with choice

Digital technology and content can enrich so much of what we do, but the flipside is that they can make life more complex rather than less so. The proliferation of content and applications is bewildering for many people, who step back rather than be drowned in a flood of content. In addition, rather than accepting what they're given, consumers are increasingly questioning what they want. The result is that consumers need help to discover, navigate, and select from massive ranges of content.
New rule of engagement: Discovery and recommendation is a key element of the consumer experience
Discovery and recommendation is a new rule of engagement in the digital content sector and will be key to increasing session times and upselling. Digital content services will be able to differentiate using a highly integrated and even entertaining discovery and recommendation experience in order to attract and retain subscribers.

Digital content is still complicated to access for the majority

Consumer demand for anytime-anywhere content on a choice of devices is leading to significant audiences migrating to on-demand viewing, whether time-shifting on PVRs, or catch-up TV or online video. Accessing these services is still complicated for the large majority. Complexity also springs from specific challenges from incompatibility in formats, standards, and devices, which in turn means difficulties in content portability and sharing. The concept of the "digital divide" could also be applied to the "greenfield" majority of Internet users – that is, those who utilize only the basic services but are frightened off by digital content services because of their lack of simplicity and usability.

New rule of engagement: Simplicity and usability is key to attracting the greenfield majority

Growing the digital content sector requires the conversion of a mass audience from the greenfield majority of Internet users. To do this a key rule of engagement is simplicity and usability. Suppliers need to appreciate that providing richer services does not mean throwing things at consumers and expecting them to get on with it. Although some digital adventurers will be happy and able to take the lead, others will not, so service providers need to think about how to support the majority and create compelling value propositions.

New-wave interactivity will revolutionize the consumer experience for applications and devices

Interactivity is becoming an integral part of consumer content and applications, but to date it has been fairly basic and focused around communications/social media and giving people more control over service consumption. But this is about to go through a sea change due to the impact of a number of key, sensory technologies, of which the more interesting include:

Motion sensor technology (MST). MST has already taken route in the gaming environment and some mobile phone applications. MST enables the user to sit back and simply point at the screen to manipulate it with subtle movements. At the recent Mobile World Congress, NTT DoCoMo demonstrated eye-controlled playback and volume for an MP3 player.

Haptics. Concerned with the technology and physiology of touch, haptics is already making its way into touch-screen technology with mobile vendors such as Samsung. Haptics will feed directly into applications going forward, particularly games and also utility applications related to education and training.

Augmented reality. This is a relatively new technology that allows graphics, audio and other sensory enhancements such as touch to be superimposed on real-world objects/environments in realtime. It is already being used in mobile applications, through the phone's camera and GPS capabilities, to gather information about local sites and overlay this information on the phone's screen.

New rule of engagement: Integrate sensory technology to enrich the consumer experience

The deployment of sensory technology to achieve superior performance capable of revolutionizing a CE market is proven. Nintendo's use of sensory technology was key to the success of its Wii games console, and Apple's integration of capacitive touch-screen technology was fundamental to enriching the iPhone consumer experience. The Xbox's controller-less gaming interface, Project Natal, could well become another example of how the integration of new sensory technology has become a new rule of engagement.

Digital content enters a new phase of monetization

There is evidence that digital content is entering a new phase of monetization as old business models become less effective and new ones come into force. In the words of Rupert Murdoch, News Corp's combative leader, "there isn't enough advertising in the world to go around to make all the websites profitable." The bottom line is that digital content providers, whether publishers, operator portals, newspapers, or video, gaming and music services, are not attracting the paying audiences or advertisers necessary to break even on their own, resulting in ambitious and highly strategic moves to monetize and launch new business models.

New rule of engagement: design hybrid business models

Publishers, music and video services have, so far, not optimized their revenues through free pure-play ad-supported business models alone, and have left the search giants and ad networks as the main profiteers of online advertising. Consequently, the new rule of engagement requires the design of multiple complementary business models into an integrated offering that optimizes the capture of value. Emerging hybrid models include:

• The "Freemium" approach, which balances free services with multiple revenue streams from advertising and premium content in order to optimize revenues.
• Bundling-based business models that combine a range of services that upsell subscribers to more expensive packages, increasing ARPU. These models can also have the effect of reducing churn and therefore introducing an indirect revenue stream.
• New advertising and conversational marketing techniques are being integrated into new hybrid business models that take advantage of new ad metrics and new engaging ad units, and incorporate social networking and conversational marketing into the mix.

By Eden Zoller and Mark Little, Ovum – part of the Datamonitor group