The 40th annual Consumer Electronics Show reveals that connectivity is king.
In January, the massive Consumer Electronics Show celebrated its 40th anniversary. The CES bacchanalia in Las Vegas showcased an industry that has inexorably grown with the promise of converging technologies.
However, in 1967 many of the industry players wouldn't have been able to imagine the vast changes the microprocessor and the Internet would bring to entertainment and the world. A 1967 CES exhibit introduced the first solid-state television. Other exhibitors showed off the latest in transistor radios, stereos, and small-screen black-and-white TVs. Although Sony and RCA were present to demonstrate their corporate leadership that year, the founders of Apple and Microsoft were still in elementary school. Indeed, the future of the consumer electronics industry—the microprocessor—would not even be invented for another four years, at a small company called Intel.
So it is not insignificant that the keynote speakers for CES 2007 were Leslie Moonves, CBS television and cable network president, and Michael Dell, chairman of the well-known PC maker. Both men represented the past and future of home entertainment. Television, hot again in a world of iPods and cell phones, has assumed a form as foreign as the Encyclopaedia Britannica is to Wikipedia.
THE YEAR OF HDTV
In 1967, only 16 percent of US households had a color TV; 49 percent owned one by 1972. In 2006, TV took on new life with the deployment of video on iPods, the phenomenal growth of Internet video via sites such as YouTube, and the rapid adoption of digital television. Today, one-third of US households, roughly 35 million, have high-definition digital televisions (HDTVs), according to the Envisioneering Group research firm.
Home Theater magazine recently noted that—according to Port Washington, NY-based research firm NPD Group—falling prices and improved programming availability boosted HDTV sales by 50 percent during the past year. For the year ending 30 September 2006, manufacturers sold more than 2.4 million HDTV sets in the US—three times the number sold two years ago (
www.hometheatermag. com/news/120303hdtv).
Three factors drove demand for HDTV:
Rapid adoption of flat-panel TVs showed that consumers were ready to ditch their CRTs.
Satellite and cable providers supplied an increasing amount of HD programming. Watching an NFL football game in HD on a large display proved tempting enough to prompt many affluent consumers to buy Sony's $33,000 70-inch HDTV.
Government policy and corporate ambitions converged.
The third trend proved to be the central influence in the living room's digital transformation.
GOING DIGITAL
Digital TV will widen the available broadcast spectrum to encompass a variety of applications such as mobile digital TV, Mobile WiMax, and enhanced emergency services. It will also provide more bandwidth for governments to license. This has provided a major incentive for the long-term deployment of terrestrial digital TV. Yet, to be effective, countries must make a complete changeover at one time. The Netherlands made the switch first, on 11 December 2006. Many more countries will follow, as the Digital Television Wiki describes (
http://en.wikipedia.org/wiki/Digital_television).
On 1 February 2006, the US Congress mandated the largest turnover to digital when it set 17 February 2009 as the final deadline for the DTV transition. Most television stations will continue broadcasting both analog and digital programming until that date, at which point all analog broadcasting will stop. Analog TVs receiving over-the-air programming will still work after that date, but only if owners of these sets buy converter boxes to change digital broadcasts into analog format. Converter boxes will be available from consumer electronic products retailers at that time (
www.dtv.gov).
Although broadcasters have avoided previous deadlines, this one looks like it will stick. So far, the limited presence of HDTVs and anemic demand for digital content has provided the excuse to extend the deadlines. But now broadcasters eye digital television as a potential life preserver for an industry faced with multiple new distribution channels for video that range from DVDs to Apple iPods.
Internet Protocol Television (IPTV)—digital TV delivered over the Internet—has emerged as the major threat to mainstream TV. The net is ubiquitous, so customers need not wait for digital video delivery anymore because 43 million American homes already have broadband Internet connections. Likewise, the success of YouTube, the online free video content provider, takes direct aim at mainstream broadcasters.
Mobile phones also might be a serious alternative to digital television. Verizon Wireless partnered with Qualcomm to begin delivering 30-fps digital television broadcasts to cell phones in March 2007 with Qualcomm's MediaFLO technology. Qualcomm and Verizon expect to launch mobile TV services in approximately half the markets that Verizon's CDMA2000 1xEV-DO-based broadband network already covers, enabling the company to offer real-time mobile TV services of unprecedented quality to its subscribers. Verizon will be the first US wireless service provider to offer MediaFLO when the network becomes commercially available.
According to John Stratton, Verizon's chief marketing officer, MediaFLO USA's network will provide compelling real-time multimedia services to wireless customers, including those who subscribe to the V CAST broadband multimedia service. It's going to be lonely living in the analog world.
CREATING A DIGITAL FAMILY
For consumer electronics companies like Sony and Matsushita, this transition to digital television offers both a boon and a curse. Formerly moribund product lines like TVs have become high-growth items again, but in a friction-free economy they eventually become commodities. For example, last year, Matsushita stopped producing analog TVs—at the time 30 percent of the company's total TV business—to concentrate on digital TVs.
Electronics and media giant Sony's strategy exemplifies the risks companies must take to survive in a world where the old Chinese curse "may you live in interesting times" thrives. The company's approach to digital TV has been driven by a dual focus as both content producer and technology provider. Maintaining leadership in entertainment and consumer electronics has meant focusing and synchronizing efforts across a plethora of product lines toward this new digital convergence.Sony's entertainment division produces movies and TV shows as well as music. Sony took in $3.34 billion last year for its theatrical movie business with hits such as Casino Royale. Yet it's the long tail of Sony's 3,500-title movie and television library that makes it a content and distribution company. And here Sony depends on DVDs to be a cash cow. For example, its film The Da Vinci Code has already made $133.7 million in DVD sales.
Unlike content and distribution competitors Walt Disney and Fox, Sony also makes the production and delivery systems. A leader in digital production equipment such as HD cameras, it has begun deploying digital cinema in theaters.
Sony also makes HDTVs and the Blu-Ray high-definition DVD drive. Despite the competition with Toshiba and Microsoft over HD-DVD formats, Sony is pursuing an approach similar to the tactic that worked for its PlayStation 2 game console when it added a DVD player to justify the PS2's $300 initial cost. But the PS2's success also fueled DVD sales, which benefited Sony's content product lines.
History repeated itself this past November with the PS3's inclusion of a Blu-Ray drive. Although at $600 the PS3 is the most expensive of the new consoles, costing twice as much as the Nintendo Wii, the entire game console is only half the cost of a stand-alone Blu-Ray player. With sales of about 750,000 PS3s over the holidays, Sony has thus given its Blu-Ray format an initial market boost.
Moreover, Sony is the only console maker that supports the High-Definition Multimedia Interface (HDMI) for HDTV digital connections. The PS3 also has a Gigabit Ethernet port for broadband access and, in the 60-GB hard drive version, IEEE 802.11b/g Wi-Fi connectivity, multiple flash memory card readers (SD, CompactFlash, memory stick), and Bluetooth.
THE MISSING LINK
On the surface, the PS3 offers perhaps the ultimate digital convergence device for games and HD video to connect to Sony Bravia HDTVs. But it still lacks an HDTV tuner or cable interface like the PS2. And despite the PS2's position as the all-time leader in console sales, Sony has sold only 35.8 million sets over the past six years (
http://biz.gamedaily.com/industry/feature/?id=14737).
Compare this with the annual sales of the most ignored home entertainment device—the lowly set-top box. Analysts expect sales of digital set-top boxes to exceed 70 million in 2007. The dominant players in this market are Motorola and Cisco, which Comcast, the number-one cable company uses. Both companies are networking powerhouses, and their presence in the set-top-box market extends their presence into the home network business (
www.investors.com/editorial/IBDArticles.asp?artsec=17&artnum=3&issue=20061215). This market may open up to the Sony PS3 and other media centers announced at CES with the FCC ruling that by July 1 set-top boxes can no longer be tied to a specific cable provider through security features.
All of which makes Bill Gates pronouncement at CES 2007 that "Delivering on connected experiences requires more than just great hardware" particularly insightful. The Microsoft chairman went on to explain that "where people are being productive, doing new creative things, where they're sharing with each other, where they're mobile, where they're just playing games, that is the key element that's missing, and something that we've all got to deliver on to take full advantage of that hardware..." (
www.microsoft.com/presspass/exec/billg/speeches/2007/01-07ces.mspx).
Perhaps that's why Apple finally introduced the iPhone. With 100 million regular iPods sold, it was Apple's turn to become connected, and the company now hopes to sell 10 million iPhones by 2008.Just as cell phones will soon deliver TV programming and analog TVs will disappear, the PS3 represents another mutation in the evolution of entertainment: game consoles transformed into media centers. Whatever form they might take in 2009, these entertainment systems will be in a world strangely different from 1967, when consoles, the Internet, Wi-Fi, smart cards, DVDs, digital video recorders, MP3 players, and microprocessors had yet to be invented.
