Video game history

Here is a great infographics from The Economist on the history of video game consoles. It shows the growth of the industry but also its interesting dynamics as its cadence is clearly defined by 'console generations'. Moreover, it is clear from the chart that each generation is strongly dominated by one company, generally a different one for each generation of consoles. The regular change of the 'leader' is an interesting phenomenon and it is not always the case for high-tech, R&D driven industries. A great counter-example is the microprocessor industry, which shows a similar growth pattern and also exhibits clear generations: remember the XT, AT, 286, 386, 486, Pentium sequence? However, the leader has always been the same, at least until recently: Intel. What is the difference between these markets? This is the puzzle that we tried to solve in a paper with Elie Ofek of Harvard Business School a few years ago. We argue that the answer lies in the nature of the advantage that 'being a leader' buys for the firm. When advantage means 'higher return on R&D spending' then a dominant firm tends to invest more and, as a result, likely remain the leader. However, if the advantage simply means a 'loyal set of locked-in customers', then the leader has an incentive to lay back, which generally makes it lose its dominant position. The Economist article correctly points out that the nice pattern on the infographics might be changing. The reason is that gaming increasingly moves to the Internet and is increasingly dominated by social gaming. Does this mean that hardcore action games, based on consoles will disappear? Probably not. But growth may slow down and this might also change the industry dynamics.

Musicals

This article by The Economist is a super summary of the musical business with a great video in it. It is surprising that in this world where people seem to favor `easy access, anywhere, anytime', live performances do so well. Given the data presented in the article, musicals are more valuable pieces of intellectual properties than any movie or TV show.

Contradictions about Facebook

Lots of data and commentary came out about Facebook these past few days. One set concerns the membership base. Here, the worry is about peaking membership numbers and an aging user base. Not only seem older users be more interested in Facebook than before but younger ones appear to disengage with it. Other sources confirm the "youth problem" (see infographics on the right) but argue that members have simply shifted to mobile not well captured by current statistics (note also that younger users often do not have smartphones in equal numbers to adults).

Another set of news concerns advertising revenues. Here, the positive news is that revenues have increased 30+% compared to the first quarter last year. There have been a lot of new advertising products introduced and mobile advertising is substantially up. The more pessimistic view is that despite these changes, profits remained flat.

To me the real worry is that there has not been any game-changing move from Facebook in the past two years. Sure, there is a lot of incremental innovation: the move to mobile, some new products, etc. But the user experience is essentially the same for years now (mobile or not, in fact with more ads, somewhat less attractive). The revenue model is also identical even if somewhat better executed. But the $5-6 billion revenue simply does not justify the valuation.

Making sense of media M&A-s

Today's FT pays tribute to The Curse of the Mogul by summarizing global M&A activity in Media since 2009, a particularly disastrous year for the industry. The general point of the article is that - maybe - media firms have learnt a lesson as they seem to be more worried about the efficiency of their core businesses rather than pursuing diversification to build media empires. Is it just the crisis that forced down mogul instincts or will the learning last?

Aereo and Regulation

Usually, I am for the least possible regulation. It is indeed very hard to have good judgment on all trade-offs and, as a result, regulation may do more harm than good. Aereo's new business of streaming free broadcast TV channels to (mobile) Internet devices for a fee is definitely a good illustration of how complex a problem regulation needs to address. Re-transmitting free broadcast TV for a fee is illegal. Cable companies pay a fee to the TV channels. However, Aereo argues that, legally, it does not re-transmit free broadcast TV because it rents an individual antenna to each individual customer. This argument doesn't really make sense and circumvents the regulation with a small technical argument. Will regulators consider the law to the letter or its spirit? They need to come up with a strong decision, which will likely influence in a major way the evolution of the industry. As Aereo expands to over 20 counties (it already covers NYC) there is some urgency.

Music streaming

A few weeks ago The Economist has reported the most recent data about the music industry. The news is good: the bleeding has stopped and digital revenues are finally making up for lost CD sales. What is interesting though is what makes up the mix of digital revenues. The FT reports that while "iTunes-style" downloading still constitutes most of the $5.8 billion digital revenues, the share of streamed services revenues has grown to 20% from about 13% last year. The number of subscribers to these services grew to 20 million, a three-fold increase from two years ago. This is a substantial shift in consumer behavior and great news for Spotify and YouTube who were the fastest growing music streaming services last year. Interestingly they have wildly different business models: subscription-based vs. advertising supported, free service, respectively. If those YouTube videos manage to make it to the Google glasses, the world will definitely change. Quite exciting!

Generation C

"Generation C" is the new online marketing buzzword introduced by Google. It refers to people adopting a specific online behavior rather than a proper generation in terms of a demographic group. In fact, Generation C is quite dispersed in terms of age: 18-35. Their behavior is characterized by the 4C-s: connection, creation, community and curation. They are heavy users of YouTube, generally on multiple devices. They are not just consumers of the site but also contributors and "sharers/editors". No wonder Google wants to understand who they are and how to identify them online. Not only do they represent a sizable chunk of the -by now - more than a billion daily views on YouTube but they contribute a disproportionate chunk of the activity in and around content creation.