Developing the Digital Developing the Digital MarketMarket

October 23, 2006October 23, 2006

Mitch SingerMitch SingerEVP Technology and New MediaEVP Technology and New Media

Sony Pictures EntertainmentSony Pictures Entertainment

The End GameThe End Game

Consumer

Sto

res

“Let 1,000 retailers bloom.”

The Music Industry TodayThe Music Industry Today

Digital Music 2005Marketshare by Storefront

iTunes67%

eMusic11%

Rhapsody4%

Napster4%

MSN Music3%

Others11%

The digital music marketplace is dominated (67%) by iTunes with a proprietary format and device.

eMusic is #2 and distributes unprotected MP3’s.

eMusic is the only other storefront who can get content on

the iPod.

Yahoo and Rhapsody are primarily subscription models

(not sell-through).

Basic ObservationsBasic Observations

Copy count models do not work.

Domain is key.

Apple is the dominant domain.

It’s a movies and music world.

Other players cannot compete with Apple by pursuing closed silos.

The Failure of Copy CountThe Failure of Copy Count

1

Consumer uses 2 copies.

Spiderman: 2 copies left

A typical device failure scenario demonstrates the problem.

Using a hypothetical “4 copy” model as an example…

The Failure of Copy CountThe Failure of Copy Count

1 2

XPortable breaks.

A typical device failure scenario demonstrates the problem.

Using a hypothetical “4 copy” model as an example…

The Failure of Copy CountThe Failure of Copy CountA typical device failure scenario

demonstrates the problem.

Using a hypothetical “4 copy” model as an example…

Consumer buys new portableand new content.

Spiderman: 1 copy leftJerry Maguire: 2 copies left

1 2 3

X

Domain is KeyDomain is Key

Consumer’s Domain

DomainA set of registered devices on which a consumer

may freely access purchased content

In a domain, counting copies is not required. In a domain, counting copies is not required. Content can only play on devices in the Domain.Content can only play on devices in the Domain.

Proposed Domain ModelProposed Domain Model

User may register up to 20 devices with a service.

A device may only be registered by one user.

User may access content freely on registered devices.

Registered devices must renew domain participation once a year.

Digital Product OfferingDigital Product Offering

The digital product offering extends beyond the domain model.

Proposed Sell-Through Usage Model*

Unrestricted access acrossdomain of registered devices

Remote access beyond domainallowed with strong authentication

Physical disc

2

1

3

Key PointsKey Points

InternetInternet

Possible with today’s technology.

Multi-DRM / DRM agnostic.

Meet consumer needs / expectations.

Credible alternative to iTunes’ domain model.

Service level control.(vs. device or DRM)

Customer 1 Customer 2

Service Provider

Service Provider

Remaining ProblemRemaining Problem

Internet

A problem remains…

Operators end up performing two functions: store and domain.

The domain operator becomes the only available store.

A domain with a single store presents problems for content

owners and consumers.

DomainStore

Customer 1

Service Provider

““Let One Retailer Bloom”Let One Retailer Bloom”

Internet

iTunes is the best example of the problem.

The only place to buy the leading digital music

format is iTunes.

What We WantWhat We Want

Internet

Domain

Sto

res

Separation of store and domain.

“Let 1,000 retailers bloom.”

Sto

res

Domain is the ProductDomain is the Product

Domain

Sto

res

Retail and DomainRetail and Domain

Internet Consumer’s Domain

Domain ManagerRetailer

Token

Kiosk Website

Mobile and DomainMobile and Domain

Internet Consumer’s Domain

Domain Manager

Mobile Operator

Token

Blu-Ray and DomainBlu-Ray and Domain

Internet

Domain Manager

Consumer’s Domain

AACS

ManagedCopy

DVD and DomainDVD and Domain

Internet

Domain Manager

Consumer’s Domain

Token

Token

SummarySummary

Consumer

Sto

res

“Let 1,000 retailers bloom.”