A weekly round-up: TV, data protection & App.Net

Global digital, mobile and OTT news impacting the Nordic market
– And vice versa

Nordic tv market set to heat up as Netflix confirms regional plans

Image: Courtesy of Netflix

Competition for content delivery to the Nordic home screens is set to heat up as video streaming company Netflix enters Sweden, Norway, Denmark and Finland before the end of 2012. The announcement came only two months after Sweden’s market-leading cable tv operator Com Hem entered an exclusive agreement with yet another major US TV content player, Tivo, on delivering video-on-demand, pay-per-view and over-the-top content to its Swedish subscribers.

Specifically in Sweden, beyond P2P services and challenger local or regional content streaming platforms such as ViaPlay or Headweb, one of the major hurdles Netflix may be facing is the existing telecom and TV operators’ strong position. In particular, cable and telecom operators have succeeded in locking in many subscribers in single bill triple-play subscriptions bundling broadband, telephony and TV, adding paid-for DVR functions and film rentals to the mix. Getting subscribers to pay for that extra content service, the service price itself, and the content mix will be important factors for Netflix’s success. Without being more specific, Netflix promises Nordic subscribers a low monthly fee and “a wide array of Hollywood, local and global TV shows and movies”. Indicatively, Netflix is currently charging streaming subscribers around 8 USD in international markets. Despite these challenges, the Nordic region is an ideal place to launch a service like Netflix: fixed and mobile broadband penetration is high, there is a widespread acceptance for streaming, and multi-screen viewing is on the rise. Another important actor for a global company to succeed in the region is its ability to communicate and be reached by its customers, in their local language. The fact that Netflix has already set up a Nordic blog and a local language company web page, local Facebook pages in all four Nordic markets, as well as local customer service accounts on Twitter, is a positive move, if not a sign that the launch could be closer than anticipated.

At the end of 2011, Netflix stated it would not expand into additional markets – other than its stated plans for the UK and Ireland – until it reached its goal of global profitability. The international expansion seems to be accelerating instead. So are subscriber uptake and revenue. In the quarter ended 30 June 2012, Netflix had 3 million paid streaming subscribers in its international business, up from 1.4 million subscribers as of 31 December 2011. This can be compared with 22.6 million domestic paid streaming subscribers at the end of June, up from 20.1 million at the end of 2011.

But Netflix’s international streaming business has not only been contributing with new subscribers and revenue, it has also had a negative impact on the company’s profitability. To be fair, any expansion comes at a price. For the quarter ended 30 June 2012, the international business generated a loss of USD89.4 million, while domestic streaming customers generated a net income of USD83.1 million. To put numbers in perspective, the total loss generated by the international business under full-year 2011 was USD103.1 million, while Netflix’s domestic business turned a profit of USD226.1 million. During the quarter ended June 2012, international revenue was USD64.9 million and domestic revenue USD532.7 million.

Netflix generated USD3.2 billion in total revenue under full-year 2011. Its streaming service is available in the US, Canada, a number of countries in Latin America and the Caribbean, the UK and Ireland.

More on this news:

Netflix’s international expansion’s positive impact on revenue – Nasdaq Analyst blog

Netflix’s international expansion’s negative impact on profitability – The Province

Why Apple could buy Netflix and why it should not – Market Watch

Local streaming players not scared of Netflix – Internetworld (in Swedish)

Nordic data protection agencies looking into the legality of Facebook’s face recognition

The Nordic data protection agencies, under the lead of Norwegian agency Datatilsynet,  have decided to look into the legality of some of Facebook’s newest functions. The agencies and Facebook are to meet this fall to discuss the matter; a misunderstanding according to Facebook’s spokesperson in the region. The storage of chat conversations, tracking of search words, as well as Facebook’s new face recognition and picture tagging are three such functions, which could be in reach of regional data protection and personal data regulation. The Norwegian data protection agency published a case study last summer based on questions about privacy, which the agency had sent to Facebook. Here you can download the Datatilsynet’s questions and Facebook’s answers, in english.

Last week, Datatilsynet ordered Google to pay NOK250,000 for not complying with a request by the agency in April to delete all payload data gathered in connection with Google Street View project.

“Google does not have any legal basis according to the Personal Data Act to collect such data, consent has not been granted by the registered parties, the information has been stored beyond what was necessary and the information has been not deleted in accordance with the request from the Data Protection Authority”, states the agency, pointing out it had taken into account the fact that it was Google itself that reported the gathering of data in the first place.

More on this news:

An overview of the Nordic data protection agencies’ Facebook – SVT (in Swedish)

App.net: When did charging for a service become a questionable business model?

Picture: Courtesy of App.net

App.net,  which ambition is to bring to the market an ad-free, user and developer-driven alternative to established social streams such as Twitter, succeeded in its first market test, exceeding its targeted USD500,000 in fundraising by over USD300,000, and getting backing from over 12,000 people – among which many developers. As of yesterday, App.Net’s alpha had 4,000 users, with over 7,000 access requests waiting to be processed. The number of apps being developed has also increased rapidly in the past two weeks. Interestingly, web apps dominate that activity, with 22 apps in development against 12 mobile native apps. At this point in time, the alpha looks pretty much like a scaled down version of Twitter and the founders are asking users to give it time to develop into a complete service. “Just a reminder that alpha.app.net is just that: an early prototype. It was launched as a test and to provide a proof of concept for our fundraising campaign. It is not yet an operational service, and we ask that you please be mindful of that and be respectful of one another”, writes App.net in a letter to alpha users.

In our view, the price tag of USD50 may be a bit high to appeal to the masses, unless the service differentiates itself further from existing platforms. It may however be a reasonable level for existing Twitter users wanting to enjoy an ad-free stream. It is however much too early to tell weather App.Net can fly. It has in any case already demonstrated it can walk, by hitting its funding target.

What interested us most about App.net is actually the negative reviews its proposed business model managed to get. In the Swedish media and Twitterverse, App.net has received little attention if any, and much of it has been critical to the very idea of launching a fee-based web-based service. The same goes for US and international media coverage. Truth be told, coverage got slightly more positive as the likelihood of App.Net’s reaching its fundraising target increased. Looking only a few years back, the very idea of a free ad-based service was perceived as doomed. So was the idea of offering global services to a differentiated user-base instead of differentiated services locally. Point one: the idea of charging for a web-based service has become a big business no-no. The second interesting point in the discussions surrounding the creation of App.Net was how its founders’ ambition to create an alternative to established social networks, in particular Twitter and Facebook, got questionned. Not challenging established players means the end of innovation as a driving force. When did not trying become an option? Facebook and Twitter themselves would never have become that big if they had not explored their idea and brought about a high degree of disruption.

More on this news:

How App.Net could benefit from the so-called platform risk – cnet

App.net is more than a Twitter clone – GigaOm

It is not about the money, it is about third-party applications – Anders Thoresson (in Swedish)

Have a great weekend!

 

Facebook set to transform the mobile app economy

By Marlène Sellebråten & Katarina Chowra

Fresh rumours of a Facebook phone, codenamed Buffy – the Android and Apple slayer? – have resurfaced. Taiwanese cellphone maker HTC is said to be the vendor chosen to build the mobile device, according to AllthingsD. However, according to the news outlet, Facebook is not only talking to HTC but also to Samsung, the world’s largest smartphone vendor as of Q3 2011.

The extension of the Facebook Platform to mobile back in October – with or without the rumoured smartphone, for that matter – marks an escalation in Facebook’s ambitions in the mobile space. And by mobile space, we mean apps, search, digital advertisement and not least online payments. Facebook’s mobile platform supports iOS, Android and HTML5-based web apps. It also extends Facebook Credits, Facebook’s own payment system, to the mobile web. Let us keep in mind that Facebook today has got about 800 million users worldwide, of which 350 millions are accessing the social network via their mobile devices.

In our view, Facebook’s heavy backing of HTML5 is one of the most interesting news in the mobile web space this year.

There is today no established distribution channel for web applications, only keyword search. With its huge global user base, Facebook is indeed well positioned to become that marketplace. Distribution is the key success factor for HTML5.

The rumoured Buffy phone confirms where Facebook is headed. The application platform the phone is said to be supporting is ”a modified version of Android that Facebook has tweaked heavily to deeply integrate its services, as well as to support HTML5 as a platform for applications”, writes AllthingsD, citing sources familiar with the project.

The magic world here is not so much Android – although it is indeed relevant – as HTML5.

Developing a phone around Android would allow Facebook to deepen its mobile relationship with a fast growing number of end-users. But by going all-in on HTML5, Facebook would reach out to multiple OS and handsets. Support to the existing mobile OS is nevertheless crucial. Indeed, technically, HTML5 does not yet offer all the functionalities and advantages of native applications. In particular, native applications can take advantage of handset hardware in a way HTML5 as of today fails to replicate. Developers we talked to believe it will take a long time for HTML5 to become the dominant mobile platform. In our view, the support of players such as Facebook, Microsoft and even Spotify, will accelerate the take-off of HTML5.

Google’s acquisition of Motorola Mobility Services back in August (you can read Close to Market Analytics’ take on this here), Android’s extraordinary growth and Google’s launch of social network Google+, could potentially leave Facebook hung out to dry, with no control over either handset or platform integration and development. Let us also remember that Apple integrated Twitter in its newest handset – the iPhone 4S – not Facebook. Having said that, rather than an aggressive forward-looking strategy, Google’s and Apple’s actions in the social web space look more like defensive moves against the ever more almighty player: Facebook.

That Google, also a supporter of HTML5, is not pushing harder on the standard is somehow surprising. HTML5 should be their ultimate dream for all mobile services – since it supports their ad business. For Apple, who also supports HTML5, it is a different story altogether. Promoting anything else than native apps, at least at this point in time, would be like shooting themselves in the foot. The vendor has even been accused by developers of purposefully slowing down web applications. And last we checked, a mere 1 700 web apps were available from Apple’s web app store. Quite understandably, look not for the App Store’s blockbuster apps there.

Facebook’s developing a phone, and an app marketplace, has to do with keeping control and leveraging ad and search to a massive user database, while undercutting the current market leaders. Device market dynamics also show the growth and profit margin being higher with an end-to-end streamlined solution. By pushing a web based application platform and reducing vendor dependency, Facebook could even provide telcos with a helping hand. Although these may have to adapt by offering their subscriber base a premium mobile Internet experience, and possibly accept to become ”bit pipe providers de luxe” going forward, at least in the consumer space. As far as our discussions with telcos go, the prospect of yet another apps platform is however met with pragmatism, not to say skepticism.

Now one last thing: The very fact that a Facebook phone makes sense, does not mean that such a move will be a successful one for the social network leader. A seamless Facebook integration in a smartphone, coupled with a guaranteed high quality mobile broadband plan is, in our view, what many consumers are waiting for. Considering how Android took off out of nowhere, it feels like whoever gets this seamless integration right will manage to surf on that wave. For Facebook itself, the stakes are higher though: establishing itself as the mobile application platform of choice. An application platform with a strong focus on HTML5, and support for existing platforms Android, iOS and Windows Phone.

Marlène Sellebråten, Close to Market Analytics
In collaboration with
Katarina Chowra, Mobile Marta

Get in touch with the authors

Marlène Sellebråten, Close to Market Analytics
+46 702 955 551
marlene@closetomarket.com

Katarina Chowra, Mobile Marta
Katarina.chowra@mobilemarta.com

 

Samsung’s support critical to Google-Motorola deal

No matter how positive Samsung execs have talked about Google’s proposed acquisition of Motorola Mobility earlier this week, the deal presents Samsung with at the very least a complicated situation. Because Samsung is by far the vendor that has ridden the Android wave with most success. The fact is Google has not only bought itself a patent portfolio, it has also acquired a manufacturing capability for mobile phones, set top boxes and even infrastructure. The deal also reinforces the close partnership on Android between Google and Motorola, which de facto becomes a preferred partner.

An integrated Google/Motorola operation could be on a collision course with Samsung’s operations. That is, provided competition authorities let the ad and search giant buy Motorola Mobility and Google then chooses to keep not only Motorola’s patents but also their handset and set-top-box manufacturing business.

This signals a change in Google’s strategy.

Google has many times declared it wanted to stay out of the actual manufacturing business (and outsourced the manufacturing of its Nexus handsets). And indeed, their intent is to keep Motorola as a stand-alone company. According to Google’s CEO Larry Page’s blog post on the deal, Google will license Android to Motorola, just as it does to the other OEM vendors using the platform.

Becoming a handset maker could however make it difficult for Google to pursue a ”neutral” licensing of Android and instead prompt a tiered approach, whereby Motorola could become Google’s preferred hardware partner. It all depends on how Google decides to play it. The carriers we talked to are confident Google will read the market correctly and play it “hard and well” in partnership with Samsung. The handset vendor has indeed built a solid relationship with both customers and telcos and established a strong brand. Customers may be buying Android handsets from other OEM vendors, but they are definitely buying Samsung phones from Samsung, not Android phones made by Samsung.

“Its not just about OS. Its about marketing and customer perceptions”, says one carrier to us.

It is unlikely Samsung would chose to side with Microsoft as this would help Nokia, but Samsung could instead decide to focus even harder on its own OS, Bada, and maybe entice others to join them. HTC could more easily be tempted to side with Microsoft, but they too might not want to help Nokia. As for Research in Motion, the Google/Motorola deal is just as bad a news as Nokia’s deal with Microsoft was.

Google might have waited to see if they could buy Nokia. With reasons: The move shows that Google indeed has a hardware game plan. Possibly not only in the mobile space, but also in the TV space. Motorola Mobility, market leader in the set-top-box space, is bound to have a handful of interesting patents there too.

No question Motorola Mobility’s patents will give Google greater bartering power in current and coming patent lawsuits against other mobile vendors. And this is the very core of this acquisition – although it remains to be seen what these patents are worth. Yet, Motorola Mobility’s Home Devices business is worth to take a closer look at, in the light of Google TV’s lack of success thus far. The TV screen is a spot in the market, which Google has repeatedly tried to enter, a content and ad space it has until now failed to conquer. Well, maybe no more.

”Motorola is also a market leader in the home devices and video solutions business. With the transition to Internet Protocol, we are excited to work together with Motorola and the industry to support our partners and cooperate with them to accelerate innovation in this space”, Google’s CEO Larry Page says in yesterday’s blog post about the Motorola acquisition.

Yet, it will not be easy, as Cisco’s recent dumping of all of its home technology products shows: Home entertainment is a tough market.

Another thing: The platform war turned into patent war is a sure sign of one thing, maturity. The mobile industry’s coming of age quite simply means there is not a spot for everyone to grow in, as there was only three-four years ago. Some have to go, and Motorola is only the first one to go through the motions. Google’s acquisition of Motorola is the first major acquisition in the OEM space. By no means the last. After Nokia-Microsoft, Google-Motorola, will we be looking at Samsung-Android or Samsung…?

And truth be told, patent lawsuits by the bucket and the battle for the winning platform may pan out well for telcos. When Nokia/Microsoft, Apple and Google/Motorola are busy competing with one another, there is less time for them working on undermining the operators’ business case.

Close to market – Opinion