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Remember be careful out there – the Faultline is rough

When we wrote the first copy of Faultline in early 2003 and added our forecasts in a document called the Faultline Manifesto, we described an environm


Published: 14 October, 2010


When we wrote the first copy of Faultline in early 2003 and added our forecasts in a document called the Faultline Manifesto, we described an environment where the route to market for digital video was changing, bringing with it disruptive models which would re-write the global content equation. There was a potential domino effect linking content producers, broadcasters, pay TV operators, the advertising industry, device and operator equipment manufacturers and ISPs.

Advertising, devices, consumer habits would all change radically and the Faultline, as we described it then, was the process whereby one market leader in the old world would find that his rich seam had petered out, and someone else was mining the digital version of the area where it had been traditionally dominant.

We remember in that first issue we encouraged Sony to take a run at acquiring Apple, because it was going to become the consumer electronics king, and at the time it was worth about a quarter of Sony at around $9.8 billion. Today it’s value is edging towards $272 billion, almost the precise value that Microsoft held in the week we wrote our first issue of Faultline.

This week’s issue reminds us of the times we predicted – the new advertising paradigm is in place, with the interactivity of the internet taking it to new highs once more (see separate article) and the single backward step taken by online advertising in 2009 eradicated – TV is still a bigger medium than the internet, but the gap is closing, roughly $60 billion in the US compared to a likely $25 billion this year on US Internet advertising. But internet advertising itself is changing. Video ads jumped from 4% to 5% of the total mix, as display advertising jumped by 16% and Search advertising remained 47% of the total, completely stable, up around 11% with the market. If search slows then advertising growth is no longer a given for Google and it will have to fight it out with everyone else to bring mobile internet and internet display advertising to the world. Search is about done. Long live display and video.

Pay TV is on the blink of a radical rethink. We see in this issue the tiny Sezmi doing things around the globe that cablecos can only dream of, creating new hybrid models that will decimate the consumer cost for Paid TV. You only have to look at Hulu Plus and Netflix along with the Sezmi model in California, to see that the days of ARPU in TV services being $80 to $90 per US family per month have scant time left. If you are one of the families holding up that ARPU by spending $250 on your pay TV services, as some do, it is perhaps time for a fresh look at what’s available.

The New York Times this week ran a heart rending edition which showed that the poor US family is suffering in the “recovery” almost as badly as it suffered during the recession. We can look forward to two to three more years of consumer belt tightening. Pricing will run everything. So when research companies say that the fall in Pay TV seats in the US last quarter, the first of its kind in more than 20 years, is down to the recession, it is an economic affect that will last for the next three years and create a climate of thriftiness that will sponsor alternative business models. Cheap and clever is the new Black.

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