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 telco TV (IPTV) service providers. However, traditional Pay-TV services are not going away, and quite a few 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. 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.

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. 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.

Content Creation

Organizations that create media and content include: movie and TV production studios, record labels, gaming companies, publishers, sports leagues, broadcast networks, Pay-TV networks and local broadcasters. All of these entities are facing challenges as their traditional method of delivering content to consumers expands and electronic delivery options begin to supplant or replace some of the old models.

Movie studios create "event" types of content that most consumers will view once in theaters, purchase for extended in-home viewing, or rent in physical form, such as a DVD or Blu-ray disc, or rent electronically using a Pay-TV Pay-per-View (PPV) or Video-on-Demand (VOD) service. Another option that is growing in popularity is online video rental services, such as Netflix or Blockbuster's online service. The big buzz at the 2010 International Consumer Electronics Show was 3D televisions. The movie industry believes that 3D-capable TV sets and Blu-ray players will create a long term growth opportunity as older library titles get re-mastered and re-packaged for 3D enthusiasts.

TV studios create a series of programs that have value as a first-run show, and then produce recurring revenues through syndication. TV programs are also available for purchase or rental as physical media, or from Pay-TV or online "on demand" services.

Record labels are struggling with a fundamental transition in which physical media such as compact audio discs and DVDs must still be supported, but revenue growth is coming from online downloads of purchased songs, delivery of music through subscription and free-to-air radio services, and from online and mobile music streaming services. The transition from bundled albums sold as physical "packaged goods" to single tunes downloaded to portable music players has devastated the traditional business model. The music industry is being held up as a model for what might happen to the video industry.

Video games well positioned to benefit from digital transition

While the movie and music industries are facing challenges and threats from electronic distribution, the video game industry has embraced it, and created game console platforms and online video gaming products that use electronic delivery to increase and prolong consumer engagement with their products, and with their brands. Video games are inherently interactive, and have multiple, built-in "pause points" that permit the user to interrupt game play, save the current state of the action, and return to the game when it is convenient.

Many movie studios, TV producers, publishers, and broadcast networks are actively investigating how they can add interactive features and community connections to their products, to take advantage of the infrastructure that is being built to support interactive gaming applications.

Sports as a leading driver of 3D technology

Sports leagues occupy a special place in the pantheon of professionally-produced content. Most sporting events are watched "live" and create a definable audience of fans for each particular sport. Once the winner has been crowned, the lifecycle of video from a sporting event loses much of its impact, except for short video clip "highlights" and post-game analysis of important or spectacular plays. Since, sporting events are "immediate" the opportunity for piracy is dramatically curtailed. While the movie studios have high hopes for 3D TVs and 3D-capable Blu-ray players re-energizing growth for packaged goods, the major sports leagues will be required to drive forward adoption of 3D TV sets and 3D video delivery services. During the 2010 International Consumer Electronics Show, ESPN announced that they plan to produce and air up to 85 sporting events in 3D during the next 18 months, including the 2010 FIFA World Cup in South Africa. Discovery Communications also announced the upcoming launch of a 3D service, and DirecTV, North America's largest direct-to-home (DTH) satellite service also announced their 3D carriage plans. All of these 3D initiatives will help create consumer "buzz" about 3D, and will help retailers sell 3D products, and push forward the installed base of 3D equipment into consumer households.

The National Football League (the NFL) has already been producing 3D versions of one professional football game each week.

The television broadcast community

The television broadcast community includes the free-to-air national TV networks, subscription-TV or Pay-TV nation-wide networks such as Discovery, Viacom (MTV Networks), Disney, Time-Warner (CNN, HBO, TNT, TBS) and News Corporation (Fox News, Fox Business), and the local TV broadcasters.

The free-to-air networks derive most of their revenues from advertising. The national networks license their content to local TV stations, and the local TV stations license these rights to local Pay-TV services, such as cable TV, telcoTV (IPTV), and satellite TV services. The local TV stations receive payments from local Pay-TV services for "retransmission consent" rights to their local TV programming.

Original programming, and VOD add value to multi-channel networks

Multi-channel networks, such as Discovery, ESPN, MTV and Turner aggregate programming, events and movies into "channels" and licenses these to local subscription-TV service providers. Each aggregator promotes their "line-up" of shows, and helps the local subscription-TV service gain subscribers by offering "bundles" of channels that attract large portions of the viewing population. During the past decade, the multi-channel networks have all been creating their own original productions, which put them in an improved bargaining position for obtaining preferential programming fees. Multi-channel networks have also recently benefited by upgrading their programs to high definition. Besides offering "channels" of linear television programming, the major multi-channel networks enhance their offerings by licensing their most popular shows for use in Video-on-Demand services.

Content Distribution

Currently, about 85 percent of all US TV households subscribe to a subscription-TV service, such as Cable TV, satellite TV, or telcoTV (IPTV). About two-thirds of US households have a broadband connection to their homes. But not all consumers who have access to these services regularly use all of the features. For example, only about 50 percent of Pay-TV subscribers who actually have access to VOD regularly use it at least once a month.

The Pay-TV services are likely to be providing some amount of online video streaming that can be delivered directly to subscribers' TV sets through traditional Pay-TV set top boxes The Pay-TV services are quite experienced with managing a variety of tiers of services. They may find ways to monetize "over the top" video streaming, or improve upon the existing "over the top" services.

Not all consumers are going to be on board with the changing technology

In-Stat's continuing consumer research has un-earthed an important fact: not all consumers are going to be on board with the changing technologies. Passive users are likely to be happy with things the way they are now. This means that content owners and content distributors will still need to provide all of the traditional customer touch points while figuring out which new approaches work.

Recent findings indicate that only 12 percent of US broadband households consider themselves power users while 41 percent consider themselves as social users. By 2013, only about 16 percent of consumers are expected to be exhibiting the behavior of power users. This group will not drive huge growth because of limited numbers. However, the social user group is expected to grow to 49 percent of consumers, making social users the sweet spot that deliver high audience numbers who are receptive to the services and products of the entertainment industry. About one-third of US consumers will remain passive users, who may never become big users of "on demand" services, which means that traditional Pay-TV approaches will need to be supported throughout the coming decade.