Global Trend

The New Technology Battle for the Home

There’s no question that 2004 was a tremendous year for the consumer electronics industry. Total shipments of U.S. consumer electronic products climbed 11 percent for the year, to $113.5 billion, according to the Consumer Electronics Association. And 2005 is expected to be even bigger, with another 11 percent increase predicted by the association.

As always, consumers continue to upgrade performance with the latest tech-driven products, rather than merely replacing worn-out TVs and CD players with lower cost ones. That’s why the real growth is primarily in hot new goods like:

- Liquid crystal display TVs, which tripled in U. S. sales to just over $2 billion.
- Digital music players, such as the iPod, whose U.S. sales tripled to $1.2 billion.
- Camera phones, which sold 260 million units worldwide in 2004 and are expected to sell 420 million in 2005.

Many of the most successful products are based on the convergence of technologies into new offerings that do something more or do something dramatically better than the old products did. For example, the iPod combines a music player, a computer disk drive, and songs downloaded as digital bits from the Internet. The digital camera combines photography and computing. Camera phones let users make calls, take and send pictures, play games, and send text messages from a device that fits into a pocket.

But at the same time these technologies are converging to create new products, there remains a serious limitation: People cannot easily link their various devices together. They can download music from Napster and iTunes. They can download movies from CinemaNow.com or Movielink.com. They can shoot video and photographs in a digital format. But after assembling vast amounts of digital content, consumers find they can’t access them conveniently.

For example, the pictures they download from a camera-phone onto a PC in the home office can’t easily be shown on a TV screen in their family room. Admittedly, interfaces exist to permit almost any content to appear almost anywhere, at any time. However, most consumers find many of the existing options too costly or complicated to be practical. That’s why just one in 10 homes with Internet connections has a personal computer linked to a TV, and only one in 10 has hooked up a PC to a stereo system.

Similarly, only one in 20 downloads video from a PC and plays it on a TV, or downloads music on a PC and plays it on a stereo, according to John Barrett, director of research at Parks Associates, a digital home research firm and consultancy. For classic early adopters, cutting edge technology is actually fun. But to realize their full mass-market potential, the new entertainment options need to be as easy to use as broadcast TV or vinyl record albums.

Fortunately, a collaboration between the PC and consumer electronics industries is working on fixing this frustrating problem. Called the Digital Living Network Alliance, it is aiming to develop media servers and other devices that will seamlessly connect all of the PCs, PDAs, stereos, DVD players, CD players, and TVs in the home.

According to a report by the Consumer Electronics Association,1 a media server is a device that includes a hard disk drive for storing digital files of video, audio, and photos coupled with a means for the user to distribute those resources to other devices throughout the home. The server can be either a box-shaped device that resembles a digital video recorder, or a software application installed on a general-purpose PC.

At the moment, there is no media server on the market that is fully-functional, easy to use, and cost-effective. The closest product is a PC running Microsoft Windows XP: Media Center Edition. This software enables the PC to store digital photos, audio, and video on its hard drive and play them back via the PC’s audio and video cards connected to various monitors, TVs, and speakers. However, it can’t readily transmit those files to TVs, DVD players, or stereos throughout the home. At this point, Microsoft has licensed about 80 companies to create products using Windows XP: Media Center Edition.

At the same time, many other companies will soon offer competing versions of the media server, based on various hardware and software platforms and competing visions of the future. Among the concepts that seem most likely to win is the one offered by Ucentric.2 The firm has developed software that provides seamless access to stored digital entertainment ? including high-definition video on a digital video recorder or DVR, music on a computer hard drive, or pictures on a laptop ? from any connected device in the home.

The software is designed to operate with electronic program guides from multiple vendors, and service providers can customize the interface with applications that personalize the subscriber experience.

It is significant that Motorola acquired Ucentric in January 2005. Motorola is one of the largest makers of set-top boxes, which allow users to receive video signals from cable or satellite providers. The more sophisticated boxes function as DVRs that store TV broadcasts on a hard drive so they can be paused, rewound, or played at a later time.

The limitation until now has been that each DVR connects to only one TV set. Some DVRs, like those from ReplayTV, permit programming to be swapped between DVR units using Ethernet connections in the home. However, this has limited functionality and can be slow, complicated, or expensive.

However, with Ucentric’s software, Motorola will be able to offer set-top boxes to control the entire network of devices in the home, much as a computer network links several PCs. The Motorola/Ucentric home network will rely on existing home coaxial cable, which already runs to nearly every room in every house in America, to transmit data between the devices.

The Ucentric server can be thought of essentially as a DVR with software which permits it to handle music as well as television signals and broadband Internet data. It accommodates HDTV as well as standard-definition video. But its real value lies in the content-sharing applications the Motorola/Ucentric media server can offer. Here are just seven of the dozen or so demonstrated at the most recent Consumer Electronics Show:

Multi-TV DVR, which allows viewers in multiple rooms to watch different shows at the same time, or pause a live television broadcast in one room and resume watching it in another.

Multi-room music, which streams music from any source on the in-home network ? such as a TV, CD player, laptop or MP3 player ? to any device with a set of speakers linked to the in-home network.

Multi-screen Caller ID, which displays the name and phone number of all incoming calls to all of the screens connected to the network, including TVs and PCs.

TV voicemail, which displays voicemails on any connected screen and allows playback through any connected speaker in the home.

TV e-mail, which enables users to read and manage their e-mail from any TV screen in the house.

TV photo, which lets users display photographs stored on any in-home hard drive on any connected TV screen.

TV IM, which enables users to chat via instant messaging from any connected TV.

Since most of this functionality will be delivered to existing TVs over existing coaxial cable via small, easy-to-use set-top boxes, we believe the era of integrated home media is about to arrive.

What will this mean for consumers, investors, content providers, and consumer electronics companies? Looking ahead, we offer the following three forecasts:

First, look for headline-grabbing mergers and shocking acquisitions that cut across traditional industry boundaries. Instead of trying to build all of the technology capabilities consumers are demanding, companies will buy or partner with firms that have the complementary assets they need. Don’t be surprised if Hewlett-Packard buys Eastman Kodak, if Apple Computer swallows TiVo, if Disney makes a play for Electronic Arts, or if Google searches for a joint venture with Gemstar-TV Guide. Forrester Research speculates that these are just some of the potential deals that could happen so that companies can offer hybrid products and services through the digital media server.

Second, by 2008, more than half of American households will install home networks with media servers that link all of their electronics devices. By the end of 2005, we will see the beginning of what will emerge as a booming market for media servers.

Third, the companies that will make the biggest profits from the technology battle for the home will be the content and service providers, not the makers of the hardware. The market is likely to unfold as the PC business did, with the real riches going to everyone but the manufacturers of the devices. One lucrative business model will be delivery of video over the Internet to media servers in the home. This scenario explains why Verizon is now installing high-speed fiber optic connections to U.S. homes. Other key players will be movie studios, marketers of video games, and music companies.

References List :
1. To access the report “5 Technologies to Watch,” visit the Consumer Electronics Association website at:www.ce.org/publications/books_references/5tech_Watch-2005.pdf2. For more information about Ucentrics Media Center applications, visit their website at:www.ucentric.com