Newsweek has 3 PSP stories this past week about Sony's new PSP -- the so called 'iPod killer' handheld allowing game, photo and music access with WiFi built in...I dunno...not having seen it, it kinda sounds like a gaming device with picture access and music thrown in, which, to me, should appeal to gamers but would have a hard time crossing over to the mainstream -- it uses a Memory stick for storage instead of a hard drive, and not sure if it will support .mp3. OTOH, they expect to sell more than 3 million by the end of March (iPod took 2 years to hit that mark according to the article).

Also, timely article in a recent AdAge (I'd post the link but it's a subs-only site) about how marketers are using iPod for a halo effect with their brand. This includes companies that work directly with Apple like Bose, HP & BMW, to others that give away iPods.

[N.B. my site is currently running a sponsored giveaway involving HP iPods]

Are the iPod nano screens defective and easily scratched? A class action lawsuit gained steam a few weeks ago, and several news sources have picked up on the issue. Walt Mossberg warned users of a problem, and urged the use of a protective case. Initially, we did a casual review of the issue, using feedback from a small group of owners. I also went to Best Buy and scraped my thumbnail across the screen a few times - and nothing happened. But a recent visit to the Apple store has changed my mind on the issue.

On Wednesday, I popped into the recently-opened Apple Store at the Beverly Center in Los Angeles, just to poke around before the Black Friday rush. The store had only light attendance ahead of the holidays, so I could easily glance at the iPods on display. And since Apple has moved to just three iPods - the video-enabled, nano, and shuffle - the selection is easy to move through. There were two large tables - each with about 8-10 of the video and nanos on display. The shuffles were less prominently displayed.

The nano table was attractive enough. Luring the buyer is an incredibly small iPod, with great functionality, color screen.... the works. Most readers are familiar with the device. But most of the demo models had scratches on them - not deep gashes, but a collection of several smaller swipes. It was noticeable, and obvious. And these were display models, subject to some abuse but not sitting in anyone's pocket or gym bag for long periods of time.

I asked one of the salespeople if there was an issue. "There was a problem earlier, but we fixed it. It's a non-issue now. There was something on channel 7 about it, but they were misinformed." Channel 7? Mmmm... I wonder how many other local newscasts in other cities picked up on the issue - and how many will pick up on it in the future.

Apple has included a protective cover with new players, possible mitigating the issue. We'll have to see how holiday buyers react, and how the class action lawsuit plays out. But I was very surprised at what I saw on my little field trip...

Lots of people have weighed in on today's announcement about the JV being formed between RealNetworks and MTV, Rhapsody America, to market music subscription services. Fred Wilson prescribes 4 ways to improve the value prop: offering downloads as part of subscription packages, integrating with more connected and mobile devices, and constructing a social network. J Herskowitz has some good insights and suggestions himself like how Rhapsody should buy Napster to simplify the message and the introduction of ad-supported streaming. Rafat has his usual in-depth coverage including an analysis of the structure and financials -- the notable one to me is that MTV is contributing a $230 M 5-yr note and that the JV will be oligated to buy...$230 M worth of ads on MTVN channels over the next 5 years. I'm no accountant, but isn't that what got Enron into trouble...? But no matter, Real & MTV are lucky to be getting so much free strategic advice (he writes, tongue planted firmly in cheek)...to which I'll of course add my unsolicited opinion and advice:

-It's not a bad move for each party. MTV can do something with Urge, which was not gaining traction. Real consolidates its position in the marketplace and benefits from MTV's promotional power.

-However, I'm skeptical that MTV's promotional power will move the needle that much. Otherwise, why didn't Urge take off? The service in question is hard to advertise - you kind of have to experience it to get it - and so I suspect that subscriber acquisition costs using ads on MTVN would be high considering that you'd be educating prospects and then expecting them to sign up with a credit card to create a billing relationship. For more on this, talk to Sirius, XM and Napster or look at their financials.

-Here's the thing: subscription on-demand streaming is a utility. Fred calls it the music dial tone. As such, it should be bundled and offered by utility providers as part of a package or upsell -- cable companies, mobile carriers and broadband ISPs. These entities have billing relationships with tens of millions of subs and they could easily add this service to their tiers (as they do now with MusicChoice) or upsell. The commercial relationship announced with Verizon today is a good start but there's much more they could do here.

-If they aren't already, they should look at Fred and J's suggestions...some good ones there.

[Cross-posted from www.ragsgupta.com]

Download the PDF: gerd_leonhard_future_stories_2_the_future_of_telcos.pdf

Traditionally, telecom companies simply offered various types of phone services and connectivity, and moved lots of data around - maintaining and constantly improving pipes & networks was the primary mission. Today, the basic connectivity offerings have become seriously commoditized: prices are dropping towards zero in a ‘feels like free’ way, and due to the ever-increasing P2P action the comfortable old position of being a ‘dump pipe’ is no longer a viable option, no matter which way you look at it. The bottom line is that there is no way that Content and Services will not end up packaged into those expensive pipes, cables and wireless networks. But take note of those keywords: PACKAGED and BUNDLED and Feels Like Free.

Increasingly, the Future of Telecoms is more in the com than in the tele; in facilitating communications based on, around and ‘lubricated’ with Content and Services. Voice traffic will only be a small and probably diminishing slice of the pie here - similar to how CDs and digital music ‘unit sales’ will make up only a fraction of the future revenues of record labels.

In a networked ecosystem that wants to serve and empower those pesky ‘always-on’ digital natives, telcos and operators have no choice but to branch out into adjacent or even completely alien sectors - if they don’t, other players such as device & handset manufacturers, web portals, social networks and search engines will feel compelled to fill the gaps and push the pipe & network guys further and further down to the bottom of a digital ecosystem that has only just now begun to flourish (remember: only about 2% of the world is on broadband, today - there is a long way to go, yet). Imagine a Facebook Mobile Network, a Samsung Mobile Video Platform, and (of course) a Google eBook Reader?

Photo via Kevin Kelly

Clearly, those Web0.0 ‘dumb pipes & walled garden’ concepts are dead and gone - now it is all about what comes through those pipes, not where they come from. And crucially, content must now be defined much broader: not just as a piece of ‘professionally made’ and bona-fide copyrightable work that is being transmitted but also inclusive of all the surrounding user interactions, attention kernels and clickstreams (oooopps... sorry for the geek speak). Context becomes very valuable Content, too.

TwitterMusic, Google VidRead, Gone.MTV, Skype.TV, MotoTube…

For telcos, it’s about time to get into a new game, and it’s called Media2.0 - a vast and mind-boggling opportunity for (pro)aggressive networks to literally leapfrog over some of those incumbent and still future-shocked media companies, giving birth to or simply fueling new disruptors that could very well be the next Viacom, CBS, BBC or Warner Music. Deutsche Telekom, Orange or Telefonica should have bought Last.fm, not CBS!

Now, witness Nokia packaging UMG’s and SonyBMG’s music into their handsets, and sell it together. Witness Google trying to package ‘free music’ into their Top100.cn search engine in China; witness CBS’s Last.fm API’ing ‘free interactive, on-demand music’ into social networks. Services such as Last.FM, Pandora, Flickr and Twitter (and there are many others) already make heavy use the telco’s networks to ship and distribute data at an ever increasing pace and volume. Now, many telecoms and network operators around the world are starting to realize where their future is taking them: Content + ConText+Communications+Services+ Ads2.0.

So let’s plot a few futuristic scenarios:

Twitter may just start to provide pre-loaded content-’links’; users would be able to receive messages with a hot medialink to a file that is pre-loaded somewhere, and instantly stream it via any flash-enabled mobile device. MicroMedia anyone?

A telco (Verizon? SingTel? TMobile?) will buy whatever is left of SonyBMG when Bertelsmann finally drops out of the joint venture; and SK Telecom may well end up buying a majority stake in Warner Music, globally  (they do already own 50% of their Korean JV with WMG). My take is that Music2.0 is likely to coincide with Telco2.0 if the large (but quickly shrinking) music conglomerates and the forever-at-snail-pace music rights organizations keep on playing hard-to get with anyone that has the audacity to want to actually use their music legally.

China Mobile will start ChinaSpace, a social network build around content that is generated entirely by the users (or shall we say Usators).

Within 18-24 months, a major telecom (Vodafone? Telefonica? NTT?) will announce that they are entering the music business. They will start from scratch, unencumbered with back-catalog, contracts and Music1.0  (;) people and concerns, working with new artists and with those well-known brand name acts that have finally left their labels for good, riffing off the various Music2.0 blue-prints that have been making their way around the Net (including my own humble Music2.0 book I hope;). This will be fueled by the fact many incumbent record labels (no, not just the major labels and the RIAA) have famously succeeded in being ubiquitously hated by the music fans i.e. the users, their artists, the general public, and - you guessed it - the telecom execs, themselves. 10 years of back-patting and spending 100s of Millions of $ to convince these guys to somehow give the consumers what they really want - no wonder there is serious thirst for revenge here. Telcos are fed up and will cut their slavish ties to the old major label system in the next 9-18 months.

Flat-rate music offerings will become a standard - and fuel the telcos of tomorrow. Smarter toll-booths for more traffic.

Skype will be sold by eBay to either a major social network (F….k?) or a major telecom, and will come back full circle to how it got started: a powerful network for sharing data the cheapest possible way, be it phone calls or other bits and bytes i.e. content (read: music, film, TV, books...). Skype is where legal P2P will happen, first.

Within 12-18 months, together with Google, one of the leading advertising and communication agencies will strike a deal with a major telco and jointly launch ad-supported and user-generated content services based on an Advertising2.0 approach, completely side-stepping traditional content production and licensing procedures and offering new artists (and out-of-contract acts) yet another way to go direct.   

So, dear Telcos, Operators and ISPs, here are my 2 cents:

• Stop worrying about pleasing the incumbent music & media industry players and ‘the studios’- either they will follow your lead and give 5 Billion users what they want, how they want it, or you need to leave them behind as quickly as possible
• Play your hand now for it is strong: you have the network, you have the users, you have the billing relationships - you can get the content the way you need it, too!
• Like the Radio and Broadcasting Industries before you, start by demanding a new, standardized blanket license for full-length, interactive music streaming followed by unlimited downloading of music on digital networks; and while this is being negotiated start making deals with Ad Agencies and Advertisers to prep the Advertising2.0 pipeline.
• It’s music first and then Film, Video, TV…. $700 Billion of Advertising per year are ready to be traded in this battle for content in return for attention. Seize the day.

When: 18-24 months
Where: everywhere
Impact level (from 1-10): 10
Opportunity rating (from 1-10): 8

Some sources of Inspiration for this Future Story:
IBM Future of Advertising Report    Telco2.0 Two-sided business model
Telco2.0 Blog
Edelmann Trust Report

Download the PDF: gerd_leonhard_future_stories_2_the_future_of_telcos.pdf

Future Stories by Gerd Leonhard is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License.

Check out my new book, Music2.0 here (includes paywhatyouwant PDF download)

or on Amazon.com

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