I spent the last two days at the Piper Jaffray Global Internet Summit in Laguna Beach, California. The conference covered Internet, online content, media and enterprise software (particularly SaaS).

An area of particular interest was content distribution and the rapid change that is occurring. According to the Piper Jaffray research team many companies are poised to take advantage of a shift towards digital delivery and away from physical delivery. We have seen a massive shift in music distribution with the emergence of the iPod and video is next. The FCC mandate that all television stations cease analog broadcasts on Feb. 17, 2009 will also likely help accelerate this shift. It is estimated by the U.S. General Accounting Office that 28.0 million U.S. households will need to purchase a digital TV (DTV) or a converter box. This will ultimately open the door to real adoption of digital delivery of video since consumers will not have to change behavior, just TV’s, to receive digital content.

The snake pit of digital distribution continues to be rights management and the content owners balancing act between piracy and usability. With no standardized digital rights management (DRM) technology in use it is hit-or-miss for consumers. In September of this year a group led by Fox, Microsoft, NBC Universal, Paramount Pictures, Sony, and Warner Bros. formed Digital Entertainment Content Ecosystem (DECE) to address growing consumer confusion around buying, downloading and playing digital content offered by multiple services by working toward a simple, uniform digital media experience. We shall see…we are still in the early rounds of a long fight.

While there were many interesting panels and some very good presenters including Neil Ashe, President of CBS Interactive, and Jason Kilar, CEO of Hulu, the “ahha” moment came during a panel of young consumers that shared their Internet and mobile usage habits. They asked a room full of 30 and 40-somethings why they needed a TV. The shift to digital is being fully embraced by the next generation…time to catch up!

From left to right: Brendon Kensel, Managing Partner of Kensel & Co.; Peter Horan, CEO of Goodmail Systems; Safa Rashtchy, former Managing Director & Senior Internet Analyst at Piper Jaffray & Co.; Richard Rosenblatt, founder, Chairman & CEO of Demand Media; and Peter Adderton, Founder & CEO of Agency 3.0

The shift of advertising budgets from traditional to digital media is expected to drive digital advertising revenues in the U.S. to $42.0 billion by 2011. With a convergence of media underway, advertisers face the challenge of identifying effective advertising models for emerging forms of digital media whether delivered by computer, mobile device or digital television. Despite the already staggering spend Safa Rashtchy’s opening question for the panelists was, “Why isn’t digital advertising growing even faster?”

Richard Rosenblatt offered a social media-centric view. He viewed social networks as, “the best use of the web,” and marveled at how much time users invest in social media tools. The former MySpace.com chairman, who helped sell the company to News Corp., pointed out that despite numerous emerging user-generated social platforms and outlets, a lack of great programming on the web still prevails. “Ninety-nine percent of it is junk; it’s your dog walking backwards,” he joked.

Peter Adderton focused on his vision of the three screens – television, computers and mobile devices. However, the mobile pioneer and founder of Boost Mobile and Amp’d Mobile felt that, “Mobile will ultimately deliver the most personal interaction point with consumers.”

Peter Horan felt that digital advertising to date has not always played to the strengths of digital channels. He stated that the web is overspent right now, and that low barriers to entry cause a bevy of marketers to try to deliver the same type of “many to many” messages that are more effective on broadcast channels. The former CEO of IAC Media & Advertising held up search as the more effective approach to digital saying that, “Search was a new way of distributing attention.”

The panel shared another reason that digital advertising hasn’t grown even faster – fear. Rosenblatt noted that advertisers are still afraid of making a mistake. “Media buyers don’t get fired for buying (in traditional channels).” Adderton said that in allocating ad budgets to digital channels, there is still “Distrust among advertisers that you’re (just) buying traffic.”

Rashtchy, whose 400+ page report “The User Revolution - The New Advertising Ecosystem and the Rise of the Internet as a Mass Medium” is still seminal in the industry, brought the evening to a fitting, forward-looking conclusion by citing emerging trends.

A video of the event can be found here: http://bschool.pepperdine.edu/images/alumni/events/digitalmedia/digital.wmv

Welcome to the Kensel & Co. blog. This blog will provide insights and analysis on mergers and acquisitions, private equity investments, venture capital, business strategy, and emerging trends in the media, marketing and technology industries. The authors bring a wide range of expertise on these subjects and I encourage you to visit this site regularly for recent posts.