I don’t often refer to competitors’ reports as the analyst community generally likes to maintain a friendly distance. But Canalys’ announcement that tablets should be counted as PCs pretty much forces a reaction.

Canalys appears to be taking a technology-based approach to segmentation. So the fact that tablets have fast processors, can run productivity applications, offer email, and can access the internet, puts them in the same category as PCs, which also do these things. The absence of a keyboard, and the presence of a touch screen, are seen merely as customer options, just as one might specify a blu-ray disc drive or extra memory.

Canalys concludes that the “PC” market is therefore doing extremely well at the moment, largely because of the success of the tablet category.

Segmentation arguments are one of the many joys of industry analysis. Lines are invariably blurred, definitions hazy and perspectives inevitably conflicting. Market forecast buyers must always ensure they understand what is and is not included in any given segment, as this is often a key reason for variations in market estimates from one source to another.

But in spite of these challenges, Canalys seems to be stretching things just a little too far on this occasion. If we want to count the market for “computing devices”, fair enough. Let’s bundle in desktops, notebooks, netbooks, tablets, MIDs, smartphones, and a fair few TV set-top boxes and other devices as well while we are at it. They all offer a similar combination of technical functions, though each is clearly better suited to some more than others.

However precise we try to be about technology or functional definitions, sooner or later, we also have to consider user perceptions. If it surfs like a tablet, plays games like a tablet, and stimulates envy like a tablet, it probably is a tablet. And no amount of ivory tower contemplation will persuade Apple’s iPad customers they have bought a “PC”, however much Microsoft and Intel might wish they had.

Good luck with this one, my friends - you are going to need it.

David Mercer

Client Reading: Global Tablet Sales Forecast by Country

With a couple of hours to go before this year’s technofest in Las Vegas gets under way, I thought I’d issue a friendly warning to the growing number of firms (Intel, Samsung, LG are culprits so far) who seem to be planning to major on “Smart TV” as a key theme of this year’s show. Even before the doors open we already have a quotation from LG Electronics' Baeguen Kang: "Smart TV is an inevitable trend: As people experienced smartphones and tablet PCs, the larger screen on a TV is very attractive for apps and Web content.” So whatever people do on phones and PCs, they will inevitably do on their TVs? If this is an indication of the strategic thinking behind many of the innovations we are about to see unveiled this week, I can scarcely imagine the horrors which await us. When will manufacturers learn? As Google’s disastrous first attempt at connected TV has neatly demonstrated, people do not want the web on TV. How many times do we have to go through this learning process? What people want on TV is video content, and if that’s going to be “smart” it had better deliver some level of intelligence about what video content viewers are likely to enjoy. As I said in our (free to download) 2011 Predictions report, television viewers don’t want a million things to choose from: they want their TV to tell them what they are likely to enjoy. Surprise me, enlighten me! That has value, and if it unexpectedly appears at this year’s show I’ll be the first to label it “smart”. David Mercer

Having tested Microsoft’s Xbox Kinect for the last few days I can confirm that it has the elusive wow factor. Controlling on-screen icons and menus with a wave of the hand is the first sign that this stuff is definitely not of the old generation. Seeing your own avatar mirror your movements introduces the real sense of spookiness which only comes with genuinely ground-breaking technology. And when you are first signed into the service simply by entering the room, the realisation dawns that the age of intelligent technology may finally be upon us. My other conclusion is that if you are not physically fit before you buy Kinect, you certainly will be after a few sessions of gameplay. Microsoft is very clear that the initial raft of Kinect games titles are aimed at its “non-traditional” audience (implying, not entirely accurately, spotty teenagers shooting each other from the comfort of oversized armchairs) and involve varying levels of energy expenditure from a standing position. You may or may not be relieved to know that there is at least one application which does not require you to abandon the sofa: VideoKinect is the built-in video communications service, allowing Kinect games players to take a break to share their exhausting exploits with friends and relatives around the world. As for the games themselves, we found the bowling and track and field in Kinect Sports a lot of fun. Bowling illustrates the strengths of gesture-based gaming because the system appears to recognise genuine bowling actions which are impossible for any controller system to replicate. Track and field includes a variety of athletics events, and, yes, the 100m dash involves running on the spot as fast as you can. Microsoft told me that an elderly 80-year old lady in Australia had enjoyed some of these sports. I would like to see this. Children will love Kinectimals, the classic cutsey furry animal petting game. Choose your favourite cub, cuddle it with your virtual hands, and watch it mimic your actions and learn tricks. Parents of young children should avoid installing this game on their main TV as they will never get to watch TV again. Kinect Joy Ride didn’t work as well for me. This is the main racing game available at launch, and, yes, you have to pretend to hold a steering wheel. I would love this to have worked more effectively, but this is the point at which virtualisation just doesn’t seem to make any sense. Try it at home: See how long you can keep your hands spaced the same distance apart while moving them around in a circle, changing direction frequently, and leaning your body one way or the other to perform tricks. Sorry, but holding a real steering wheel has just got to be a better experience. Microsoft hope that Kinect will help it to “more than double” the number of Xbox 360s sold worldwide so far, which is more than 42 million. Our own core scenario forecast is that Microsoft will fall slightly short of this objective, selling a cumulative 79 million 360s by 2015. Our analysis did allow for further upside to 360 sales as a result of a successful Kinect launch, so we will be tracking its near term progress and impact on core console sales before updating our scenario models. We should also be clear that Microsoft, along with other platform vendors, tends to talk in terms of cumulative sales. Our analysis also takes account of console retirement and replacement, and this could be a critical issue as we begin to understand Kinect’s impact on wider 360 ownership. It is, after all, being offered for sale as a peripheral to existing 360 owners, as well as packaged with a complete 360 console system. Again, the mix between these two packaging options will be important in determining the real impact on the 360’s overall performance. Sales to existing 360 owners may extend the life of the system in those households but will not help to widen the audience. Microsoft’s primary interest will be to increase sales of the 360 itself to new owners. Will Kinect succeed? As always, it will depend on how we define success. Kinect is certainly innovative, and as such it will appeal to existing 360 owners who want to explore the new technology for its own sake or find the new games appealing. Kinect should also bring the 360 more forcefully to the minds of existing owners of other consoles who may be tiring of their current platform. The obvious target is Nintendo’s Wii, global sales of which, as we predicted, are declining by more than 20% this year. While Nintendo works out its post-Wii strategy, Kinect has a window of opportunity of maybe a year to tap into demand from lapsed Wii users. In spite of the enthusiasm indicated above, Kinect is not without its challenges. The biggest concern for many potential buyers will be the space required in front of the TV. Our system is installed in a traditionally small English cottage, and there is just about enough space to use Kinect for the few games we have tried. Demonstrations of some games I have seen suggest that Kinect owners will need clutter-free floor space of three feet by six feet (1m x 2m) at a minimum distance of six feet (2m) from the sensor in order to get the maximum benefit. Xbox actually recommends a distance of 8-10 feet (c. 3m) from the sensor. It goes without saying that this space must be free of all obstacles, alive or dead, if minor injuries are to be avoided. Other commentators have noted the potential for lag in motion sensing. The movements in the self-image window or the avatar certainly appear some fractions of a second behind actual motion. The critical question is whether this has an impact on usability, and so far, in an admittedly short series of tests, I have not noticed any significant negative impact on gameplay. There have been occasions when voice recognition and motion sensing do not appear to function perfectly, but I would not draw any conclusions regarding weaknesses in the technology versus the need for familiarisation. Only time will tell whether these are persistent issues which need to be resolved by further technology enhancements. Kinect’s success will hinge on whether “really clever stuff” is good enough to drive sales, and whether its integration into games is perceived as ground-breaking. Xbox is also taking a risk in focusing Kinect purely on the “active gaming” sector. Nintendo did break new ground with motion control, but Wii games did not always require players to stand up or indeed move around. Microsoft says that developers can deploy Kinect in more “subtle” ways, supporting sit-back gaming. Until such games appear the first titles risk being positioned as a niche market. But overall Kinect is an impressive attempt to take the TV games console industry in a new direction and we believe it will have the initial positive impact on the 360 business which we predicted earlier this year. Judgment on its longer term success will have to wait a few more months once the novelty has begun to wear off, but it would be very surprising if Kinect’s arrival does not push development of games and other TV-based applications in directions we can today only barely imagine. Client Reading: Taming the Waves: Games Console Life Cycles and Platform Competition

I was with Intel executives by chance today, shortly after the first rumours, based on a New York Times story, that Intel, together with Google, Logitech and Sony, are working on a TV set-top box and service. Intel was demonstrating the capabilities of its Atom platform across a range of CE devices. In particular it was showing how its CE4100 processor combined with the MeeGo middleware joint initiative with Nokia could enable more flexible and more advanced IPTV services in the future. Amino, which has sold more than 4 million IPTV set-top boxes worldwide, was on hand to claim that the Intel platform has allowed it to develop new devices much more quickly than traditional processor platforms from ST, TI and Broadcom. And Telecom Italia is set to become the first major telco customer of an Intel-based IPTV platform when it rolls out new boxes in the next few weeks. Intel claims to be in talks with many other telcos, including tier ones, about deploying its solution. Intel made it clear today that its new platform could support Android, as well as many other OSs, while refusing to confirm the rumours of a partnership with Google. Our view is that it would be very surprising if Google did not enter the TV market before very long. It is certainly possible that Intel and Sony could be key partners, although unlikely if these prove to be exclusive deals for any player. Intel for one has made it clear it will be friends with anyone, whether in service provider or retail models. Intel’s roadmap calls for participation at all levels of the TV market, including entry level devices, but initially its strategy is to drive added value at premium price points. It seems that Intel is finally getting grips with the consumer electronics market after many failed attempts over the years. David Mercer Client Reading: Connected CE Devices: Global Market Forecast and Outlook

One of the biggest ever live Internet sports events passed off (for this viewer at least) without major technial hitches this evening as the World Cup qualifier between Ukraine and England was streamed live to hundreds of thousands of viewers in the UK. Each paid upwards of £4.99 to watch the game, which was not available through any other broadcast platform. For the record, Ukraine beat England 1-0 to keep alive their hopes of joining England at the World Cup Finals next year in South Africa. My own live internet TV experience was based on a ~3Mbps BT connnection, a WiFi link to the BT Homehub, using a HPElitebook 6930p laptop with an Intel Core2 Duo 2.4GHz processor and 2GB of RAM. After resolving an initial freezing problem by disabling hardware acceleration in the Flash player I was able to watch the entire broadcast in the high quality mode with no freezing or picture breaks. I would describe video quality as close to a poor quality standard definition live football broadcast on Sky, something which major UK broadcaster ITV is well known for. One way I gauge quality is to judge how easy it is to see the numbers on the back of the players’ shirts from a distant, half-pitch shot. In live Sky SD broadcasts this is relatively easy; in live broadcast ITV games it is almost impossible, and Perform’s internet broadcast was close to this level. But the overall experience was acceptable on a 15” PC screen. I imagine it would be less so for those who connected to a large screen TV. We will know more about the commercial success of the venture once Perform and Kantaro announce subscriber numbers, which they have promised to do. They have confirmed technically that live internet sports can be delivered to mass market audiences. But with each viewer paying a minimum of £4.99, the experience had to come as close to pay TV quality as possible. Even though our experience was good, we will watch with interest for any other reports of dissatisfaction from paying customers. While internet broadcast technology is becoming more reliable, it is still by no means clear that pay-per-view sports is a viable business model, on any platform. NTL famously failed to make a business from pay-per-view football in the UK, although many believe they vastly overpaid for rights in the first place. The internet may be proven technically as a delivery platform, but the questions around willingness to pay, appropriate price points, and the profitability of this platform remain very much unanswered. Twitter: twitter.com/DavidMercer_SA Client Reading: Online Video: YouTube vs. Hulu - Let the Battle Commence!

If 3D TV is to become a reality the question of programme guides and other data overlays needs to be resolved. Today’s interfaces are designed for the old world of 2D video, and as soon as they are overlaid on 3D video something starts to look very wrong. NDS demonstrated a couple of solutions to this problem at IBC today. The first used the firm’s “Snowflake” programme guide. During playback of a 3D movie, if the guide is selected, the movie switches to 2D mode and the guide is presented in the foreground, so appearing to “float” in front of the TV screen. Another example illustrated a VOD selection menu in the foreground, against a 2D movie background, with certain titles “raised” above others. NDS also demonstrated a method of integrating subtitles over 3D video, so that each subtitle was linked to the appropriate depth of the relevant content. For example, if a character was moving “towards” the viewer, the subtitle can be linked to the correct depth. The more advanced demonstration actually overlaid a 3D EPG on top of a 3D movie. This clearly takes some careful planning, because any mixing of the guide data with the depth of the movie would create confusion. So the guide is allocated a certain depth in front of the screen, while the movie is positioned behind, with a clear “depth boundary” between the two. The guide must also feature only solid graphics, since any transparency again would lead to visual distortion. NDS was running this last demonstration from a PC, and it featured upscaled 2*1080p 3D video: today’s set-top boxes are not powerful enough for these data processing requirements. But NDS believes that next generation chips from Intel will support these capabilities. Join Strategy Analytics and D. I. S. Consulting at IBC: Complimentary Analyst Presentations Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

Nokia’s annual development showcase is taking place this week in Stuttgart, conveniently placed, for the 2000+ international visitors, adjacent to Stuttgart airport, which is not nearly as bad as it sounds. After a day of analyst meetings we spent today listening to senior executives outline the company’s future plans and examining its latest device and service offerings. A major highlight was the unveiling of the recently announced Booklet 3G, Nokia’s first foray into non-handheld devices. Actually that’s not quite true, but you have to be an industry veteran of at least 20 years’ standing to remember when Nokia last manufactured PCs, or indeed the myriad of other products it used to be known for. It abandoned most of its traditional businesses as part of its rationalisation response to the Russian economic crisis of the early 1990s, and after it identifed mobile phones as the next technology wave the company has never looked back. Nokia’s explanation for (re)entering the PC space is that convergence is happening and is here to stay. In other words, it sees computing competitors (read Apple, Google) eating into its phone business, as phone handsets take on more and more of the capabilities associated with the PC. The logic is that Nokia can counter these threats by bringing its communications expertise to the PC space. The Booklet 3G is Nokia’s first response. I hope it is not their last. We could waste many hours discussing the finer points of English vocabulary, but this is indeed a “netbook”, at least as far as anyone can point to a clear definition of that word, and that may not be very far. It could also be a “laptop”, which is how John Hwang, who heads this new Nokia business, described it yesterday. Or to be precise, “a high end mini laptop”. So take your pick. It is, without doubt, a computer. From the various videos and demonstrations it seems that Nokia is trying to position the Booklet as a handheld device aimed clearly at portable applications. Promotional videos featured young, attractive (inevitably) people holding their Booklets in one hand while walking along streets, chatting idly with friends and surfing the web in attractive (inevitably) locations like ski resorts and wine bars. Actually I made that up, but you get the picture. For the record, the key features are Windows 7, 1.6GHz Intel Atom Z530 processor, 1GB RAM, 120GB HDD, claimed 12 hours battery life, 10.1” display, HDMI, GPS, accelerometer, Bluetooth, webcam. You may have spotted a couple of items which mark the device out from the usual netbook crowd. With GPS, accelerometer and 3G the Booklet is clearly designed to further strengthen Nokia’s position in the navigation and mobility applications segment. Retail price will be €575 plus tax. Nokia is confident (you can assume the deals are more or less done) that the Booklet will be heavily subsidised by mobile operators in return for the user’s long-term commitment to big fat monthly mobile data fees. The booklet is a nice-looking, well designed and high quality device. The to-ing and fro-ing around its categorisation is not coincidental, since its specification probably comes close to some low end notebooks/laptops. But prices for those start at €300 or less, while top end netbooks struggle to reach Nokia’s price point. As with Nokia’s phone business, it seems that close cooperation with operators will be necessary to ensure that Nokia’s return to the PC business is not a short-lived affair. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

I couldn’t help smiling at the latest euphemism for the world’s economic problems: “The economy and the industry are in the process of resetting to a new baseline”. If you didn’t know we were going through the world’s worst recession in living memory (if you’ve been alive for less than 80 years, at least), you could be forgiven for thinking things were ticking along quite nicely, and the captains of industry had got together in a little huddle and decided to redraw a few graphs, but there was really nothing much to worry about. Perhaps Intel CEO Paul Otellini's comment was meant to be taken ironically, though I rather doubt it. Quarterly results announcements are not normally a venue for dry humour. But we take every ray of sunshine we can get these days, especially in the midst of a cloudy, cold, damp British winter. So thanks, Paul, you’ve set us up nicely for the weekend. As thousands more people collect their redundancy cheques we can rest assured that as soon as you’ve reset your baseline “growth will resume” and everything will be back to normal. If only it really was a laughing matter. Twitter: www.twitter.com/dmercer15 Client Reading: IFA 2008: Internet and 3D Offer Hope During Europe's CE Recession

Macrovision is not a name many consumers will be familiar with, except perhaps those with a close interest in breaking content protection systems. Macrovision evolved as one of the early leaders in this market, and its technology is today deployed on 249 million TV set-top boxes and 12 billion DVDs. It also prevents the copying of many pay-per-view television programmes. Over the past year or so Macrovision has moved forward aggressively to reposition itself as a player in the wider content discovery business. Its major move was to acquire Gemstar-TV Guide in May last year, giving it a leadership position in TV guide technologies. We discussed Macrovision’s plans for the next wave of TV interfaces with Richard Bullwinkle, the company’s chief evangelist. Richard demonstrated the new Neon guide, which will include innovations that will bring greater power and personalisation to the interactive TV guide. Neon will allow viewers to see not just lists of TV programmes, but also what content is available on their home network devices as well as from the Internet. Where and when Neon gets deployed depends on CE manufacturers and service providers. But Macrovision clearly has a head start because of its TV Guide market leadership. And as Richard was keen to point out, competitors looking to develop internet TV applications that provide information about television programming should be aware that Macrovision has lots of intellectual property in this space. One issue which I debated with a number of players here at CES is the problem of tailoring TV and internet guides to multiple users within the household. While nobody expects TV users to “log on” before they can watch TV, the fact that Macrovision’s and other new services allow increased personalisation does beg the question: which member of the household has control as the “administrator”, and how easy will it be for younger household members in particular to override security restrictions. When content is being sourced from all over home networks and the Internet this is likely to become an increasingly vital question and it didn’t seem to me that anyone at CES has really solved this one yet. Client Reading: Digital Media Devices Global Market Report

LG kicked us off this morning with a bullish presentation after announcing 16% US revenue growth in 2008. A variety of new technologies were confirmed, including 60GHz WirelessHD connectivity, 3D processing chips that will be ready for future 3D formats, TruMotion 240Hz (which combines 120Hz with backlight switching to create a 240Hz effect), LED backlighting (which gives a 2,000,000:1 contrast ratio), and 25mm thin LCD TVs. The hot LG story is around its deals with internet content providers. Netflix, Youtube, Yahoo and other providers will appear as menu options on a range of connected devices, including TVs. LG also introduced an 802.11n BD player, one of the few integrated wireless enabled BD players on the market. Netgear also gave a strong performance, centered around its ITV2000 internet TV player, launching in summer 2009 at $199. This is a compact, pocket-sized set-top box which will give access to web content, including the inevitable Youtube, without the need for PC connectivity. Netgear also introduced its Digital Entertainer Elite, priced at $399 and available in February. This device incorporates a 500GB HDD and plays HD video at “up to Blu-ray quality”. I suppose that means something close to Blu-ray if the wind is blowing in the right direction. Toshiba, rather strangely, began their press conference by highlighting their leadership in “TV combos”, ie combined TV/DVD players. Not exactly technology innovation, but I suppose they had to find a market leadership story to start with. The new stuff focused on the introduction of internet widgets in TVs and other devices from the likes of Intel, Yahoo and Microsoft. Toshiba highlighted a number of content service providers on their presentation material, including Myspace, CinemaNow, Yahoo and CBS, but the fine print indicated that these names were shown “for demonstration purposes only”, suggesting that partnership deals are still at the negotiation stage. Toshiba’s approach to internet content is based on Microsoft platforms such as the Media Center PC, which is not surprising given its stronghold in the PC market. In the TV space, Toshiba announced the introduction of Dolby Volume, which balances volume levels across different TV channels so that viewers don’t have to keep adjusting volume levels. Dolby told me the technology has been a success in Japan for the past year and is now making its way to the US and Europe. Toshiba also indicated that the long-awaited Cell TV is on the horizon. Using the Cell processor at the heart of the PS3, this will be launched in 2009. Cell TV could allow 6 simultaneous HD streams to be recorded, support the next generation of 4k x 2k panels and allow for 3D graphical interfaces. Client Reading: IFA 2008: Internet and 3D Offer Hope During Europe's CE Recession