Connected Consumer Q2: Digital music meets the cloud; e-book growth explodes

1. Summary

The second quarter of 2011 was a fast-paced one for the connected consumer segment, with every sector of the digital media landscape — music, e-books, online video and gaming — experiencing significant events and changes.

Some examples of the trends that defined the most recent quarter include:

• Media consumption, purchase and management continued its shift towards the cloud. Apple, Amazon and Google all made major announcements around cloud-based music and media storage, indicating that the battle for the consumer media cloud is heating up.
• The online music world saw increased validation through Pandora’s successful IPO and the launch of European site Spotify on U.S. shores. Startup Turntable.fm also caught some attention, and indicated that the nexus between social media and music will be increasingly important in coming years.
• The battle for the living room continues apace. Game console manufacturers Microsoft (Xbox 360) and Sony (PS3) added new content to their platforms, while Nintendo finally got into the HD race with the Wii U.
• Video communication is closer than ever to becoming a staple of the consumer communication diet: Microsoft announced its intention to acquire Skype (and to integrate it with the Xbox 360). Google, meanwhile, launched a well-received group video chat service in Hangouts, part of its ambitious new Google+ service.
• E-books and e-readers may be the fastest moving of all categories: The total number of consumers with e-readers doubled in the past six months.

In general, the market for connected consumer technologies is hotter than ever. Connectivity is now a core part of any consumer device and network-delivered content is increasingly becoming the lifeblood of these devices. In this report, we examine each of the segments listed above and provide a near-term outlook for where the market is headed over the next 18 to 24 months.