So far we have not been disappointed at the IEA/Marketforce's Future of Broadcasting conference, even though the precise questions I suggested have not been addressed. We did, as expected, have to suffer the well-worn cliché, courtesy of Channel Four’s Anne Bulford, that the UK has the “best broadcasting” in the world. If somebody could offer a quantitative measure to prove this I might start to believe it. The battlelines have, as usual, been drawn between Sky on the one hand, and everyone else on the other, although Michael Grade, Chairman of ITV, in which Sky is a major shareholder, did a good job of supporting Sky’s view that there is too much regulation in broadcasting in general. As Grade said, “it’s not as though broadcasting is a life-threatening industry, like air travel or drugs”. Grade described the process involved in getting business deals done as a “nightmare involving years of lobbying”, because of the grip Parliament has on the broadcasting industry. Sky, in the form of COO Mike Darcey, has done its usual excellent job of standing up to the forces lined up against it (as it sees it). The key question, from Ofcom’s Peter Philips in the audience, was “why should Sky not be regulated like the telecoms industry?”. Darcey’s response: “because, unlike Sky, BT did not build its own network – the government did”. In that response lies the nub of the regulatory and competition issue in the UK and in many other markets around the world. Should content be split from the network? Ofcom has indicated clearly that it does not see this as an appropriate solution, instead preferring to concentrate on the issue of the rates at which Sky wholesales its channels to other service providers. Darcey today indicated clearly that it would take Ofcom to court if it went ahead with proposals to price-regulate Sky’s wholesale business. At the same time, Sky recommends that competitors, such as ITV and Channels 4 and 5, consider becoming pay TV providers as advertising revenues plummet. But competitors have already failed at this in the UK: first, Channel Four’s abandoned its premium movie service; and now Setanta has had to withdraw its pay sports channels. With a few minor exceptions (including adult content) there are no successful pay TV competitors to Sky in the UK. Sky’s success has been built on its control of network, technology platform and content. Unless another firm is prepared to make a similar investment, or content is forcibly split from the network, it is unlikely that a serious alternative will emerge. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Devices Global Market Report

Pace, the UK-based set-top box manufacturer and third largest in the world, announced its 2008 financial results today. The company’s revenues rose to a record £745m and profits reached £28.5m. Comparison with previous years is difficult for two reasons: The company made a major acquisition of Philips’ set-top box business in 2008, and also changed its financial year. Pace’s CEO Neil Gaydon told us that he expects the pay TV business to be more resistant to the impact of the recession than many other sectors. The global market for set-top boxes continues to grow as new pay TV customers sign up for the first time and existing customers upgrade to more advanced services (HD, PVR). A key driver at the moment is the process of analogue switch-over which is taking place in many countries, and is encouraging some customers to switch to set-top box-based services for the first time. According to Gaydon, the structure of the set-top box industry is dictated by the unique and precise requirements of the multiple pay television operators in different parts of the world. These needs make it very difficult for smaller vendors to build the economies of scale that are traditionally associated with consumer technology markets. Pace’s strategy has focused not on becoming the number one supplier in the market, but on winning new service provider customers and maintaining profit margins. While it has clearly performed well recently, Pace’s long term future is inevitably dependent on the impact of the transformation of the television industry by broadband and connected TV devices. Gaydon is probably right to say that there is no imminent threat to the set-top box for the large majority of couch potato TV viewers. As I said recently, the fact that Sky still outbids its rivals for live football rights is a good sign for pay TV, as long as unauthorised broadband distribution of live football does not get out of control. But as we move through the next decade the landscape will surely begin to evolve towards new models of video delivery and Pace will need to demonstrate flexibility and innovation in order to keep pace (sorry) with those changes. Twitter: twitter.com/dmercer15 Client Reading: Western Europe Digital Television Forecast: 1H'09

We saw impressive demonstrations today of Nvidia’s new GeForce 3D Vision glasses. These use two LCDs which synchronise with special 120Hz monitors via infra red emitters. Although Nvidia claims that 3D effects are apparent with most existing PC games, it has currently approved around 300 games. The certification process is a major investment for the company, but necessary in order to ensure user confidence. True 120Hz monitors are now available from Viewsonic and Samsung. Viewsonic has branded its 22” model FuHzion, and it retails for $349. The company believes this price point is now right for the mass market. Personally I think they are being over-cautious – It’s not so long ago since standard 15” and 17” LCD monitors were priced well above this level, so $349 for a 22” with the latest technology seems almost a bargain, at least for hard core gamers who are looking for the best possible experience. Games are the obvious place to start for the coming 3D revolution, since many games have 3D capabilities built in from day one. It will begin with the hard core PC games community and spread out to other PC and eventually console users. The latter will depend of course on whether the major platform owners choose to introduce 3D technologies, and they may be reluctant to do so until 3D capabilities are more widespread in the HDTV market. Our position has always been that most consumers are reluctant to use specialised eyewear when watching TV. Philips and other companies have demonstrated much improved eyewear-free solutions in recent months. But there’s no doubt the various glasses-based approaches are also improving and becoming more comfortable and effective. The ideal solution in television and video will not depend on glasses, but if that can’t be deployed to the mass market any time soon, Nvidia’s technology and others like it may begin to gain wider acceptance. Client Reading: Digital Media Survey: An analysis of US Online Premium Video Users

Like most telecoms technology vendors, Alcatel-Lucent has been suffering from a stagnant market and intense competition from emerging players such as Huawei. In fact ALU’s 2008 revenues are expected to decline “in the low to mid single-digit range”, according to the company’s Q3 financial report. Alcatel-Lucent was formed in 2006 from the merger of two of the industry’s historic giants, each with a pedigree going back to the dawn of electronic communications in the late 19th century. Those roots are evident in the Bell Labs operation, still based in Murray Hill, New Jersey. Bell Labs was for most of its life part of the AT&T organisation, and has been known as Lucent Technologies over the past decade or so. Over the years Bell Labs has been involved in developing many new technologies, not just in voice communications but in media and entertainment. Somewhat off track, a particular story caught my eye. Back in the early 1930s, when the world’s economy really was in meltdown, Bell Labs was involved in various sound recording developments and worked with the famous conductor, Leopold Stokowski, to improve the recordings of his Philadelphia Orchestra. This led to the use of gold film to improve recording masters, as well as the development of stereo recordings. In 1933 a concert in Philadelphia was transmitted in stereo over telephone lines to Washington, D. C. As I’m often reminding clients, the concept of using our phone lines to “stream” content is really nothing new… While major firms around the world rightly review their finances in the light of the current global economic crisis, they also need to avoid the temptation to take their eyes off the innovation ball, because when markets and economies do begin to recover, companies with strong positions in the next wave of technology industries will prosper, as the story above illustrates. Against this background, ALU last week presented its Bell Labs Innovations day, which, in recognition of the Franco-American business alliance, took place not in Bell Labs’ NJ base but at Alcatel’s historic headquarters in rue de la Boétie, Paris. We saw a series of demos under the theme of “Transformation”, as well as specific projects focusing on improving existing applications like home management and IPTV. Within the Home demo, we saw online gaming (Mario Kart as it happens) on Nintendo’s Wii console using a wireless LTE connection, alongside a console using a regular fixed broadband line, demonstrating that 4G at least in theory can meet this particular home application. Next to this was a demonstration of 3DTV, without which no discussion of emerging consumer technologies is now complete. Like most other demos I’ve seen, this used the Philips 3D display. ALU is not about to get into the consumer electronics business, but it is exploring the potential impact of 3D on its IPTV business line, and in particular showed a couple of interesting examples of how 3D EPGs and user interfaces might be presented. Video conferencing is another application with potential relevance to 3D. There was also a display of a femtocell solution, in which various CE devices were sharing the femtocell wireless connection built into the home gateway. Telecoms vendors have been pushing femtocells, which are basically a very low power cellular transmitter, as one of the next innovation waves. The initial motivation of femtocells was to improve in-building cellular coverage. This demo suggested that they also provide an alternative home networking solution. My question was why this offered any improvement over existing, widely deployed WiFi technologies, and the answer offered was that femtocells will be easier to use, since devices will be easier to connect and will have better power management. We will have to wait for actual deployments to see how true that is. WiFi is certainly not perfect, and connecting a new device to a home network can still be a challenge, but once it is installed I have few problems, and it’s not clear to me exactly why femtocells would be an improvement. We also saw a prototype of a video microprojector, which beamed a video from a mobile phone onto the wall. It offers VGA resolution today. We are told that true HD is on the roadmap, although this will demand a larger footprint. As optical modules such projectors will be integrated into handsets, something which we can expect from around 2010 onwards. The quality is likely to be adequate for laptop-equivalent displays (~20” diagonal). Battery life will clearly be an issue – constant projector use would give a phone about 2 hours’ usage. A number of other demonstrations focused on media and content applications such as photo file management and intelligent video stores. The latter is a profiling technology that suggests video titles based on a user’s search activity. ALU was keen to point out that this would be entirely an opt-in process. Putting all of the significant near-term business challenges aside, ALU would appear to be well positioned to take advantage of new revenue streams, if and when they emerge. The challenge as always will be to predict the winners. It’s a reasonable bet that at least one of the innovations on show will make it onto the long list of past success stories, but it may be a few years before we discover its identity. (Footnote: I just arrived in San Jose for Cisco's C-Scape event, which will make an interesting contrast with the Bell Labs show - updates to follow.) Client Reading: CES 2008 and Beyond: Can the Wow Factor Make a Comeback?

...and not before time. The BT Vision Philips set-top box (V-box) has had HD capability built in from day one, as have most IPTV set-top boxes around the world. So it's taken more than 18 months since the launch of the service to offer HD quality. BT's first deal is with NBC Universal "for a broad selection of feature films" on the VOD service. Specifically, that means The Incredible Hulk, Wanted and Charlie Wilson’s War, alongside library titles such as E.T. – The Extra Terrestrial, Shaun Of The Dead and Miami Vice. Prices for new films will be £4.95 and library titles £2.95. BT says they are "competitively priced", but Sky HD Box Office movies are priced at £3.99 so users will soon decide whether £4.95 is too much for a recent release. BT's model for Universal movies is the usual "unlimited viewing" during a 48-hour period. It's good to see broadband television in the UK catching up with other European countries like France (though, as I have pointed out many times, BT Vision is not really "IPTV" - it's IP VOD combined with DTT). It will require a lot more choice of HD content for BT to start deploying its HD service as a marketing weapon, but this is at least a start. BT should also be commended for not falling into the "four-letter word" trap: there is no mention of "full HD" or 1080p. The BT Vision V-Box can present HD content in 720p and 1080i via HDMI. All HD content is encoded and delivered to the V-Box in 1080i. So the UK's Blu-ray fans can rest easy for now. Client Reading: Full HD: Blu-ray Camp Claims Broadcasters "Mislead" Consumers

We have always cited the cable industry as the archetypal vertical or closed content-to-device business model. Ever since the US cable network providers (MSOs) began to offer paid-for services and secure content using set-top boxes, they have steadily increased their hold on the television content and device market. Initially with analogue premium TV boxes, and more recently with digital cable boxes, a growing proportion of US TV viewers use a device provided by their cable operator as the gateway to all their television programming. And as the cable industry has added more advanced features to those boxes, such as DVRs and VOD, these have also been controlled by the set-top box, leaving the “TV set” as essentially a dumb terminal. The satellite TV industry followed a similar model in both the US and Europe. Cable in Europe, however, has a somewhat different history, since its early development was encouraged by government subsidy in several countries. But the US model has also found its way into several European countries, notably the UK, and as digitisation of cable has accelerated, European cable operators have also moved increasingly towards a set-top box approach. Manufacturers of TVs have been concerned at these trends for many years, realising that the “intelligence” of their devices was being bypassed and ignored as many viewers used set-top boxes. In spite of many attempts over the years to encourage the integration of various cable or satellite technologies into TVs, such as digital tuners or smart card slots, these have largely failed. The challenges for TV manufacturers have been numerous, not least the additional cost of these features and overcoming the obsolescence argument, that viewers may want to change cable or satellite providers or services without having to change their TV set. There has also been an argument that it has not been in the strategic interests of cable or satellite providers to allow integration of what are essentially their network technologies into devices that are available in an open, horizontal market. Having fought hard to win new customers, service providers should not be inclined to make it easy for those customers to move to a different supplier, and forcing them to use a proprietary device is one way of discouraging churn. Recent developments suggest that the cable industry at least is now ready to adopt a much more open stance towards the CE industry. In the US, Sony has signed an important agreement with the five largest cable operators (Comcast, Time Warner Cable, Cox Communications, Charter Communications, Cablevision and Bright House Networks) to use Tru2way technology in its TV sets and other CE devices. This will allow cable customers to use cable services, such as VOD and interactive guides, on these devices without the need for a set-top box. Given the support for Tru2way by other major CE companies, there seems a genuine possibility that it will become widely deployed over the coming years, although the cable operators still have to demonstrate that they are wholeheartedly behind the initiative by actively promoting the technology. In Europe, meanwhile, some of the cable industry’s largest operators are also moving towards endorsement of a more open system. CE companies Sony, Panasonic, Samsung and Philips have led the initiative to develop a platform known as CI+ (Common Interface Plus). German cable operators, including the largest, Kabel Deutschland, have given their support, and others are expected to follow suit. CI+ will allow users to access premium and advanced cable services without the need for a set-top box. CI+ devices will incorporate a smart card slot which will accept conditional access modules provided by cable operators. So is this a sign that cable operators are accepting that the world is moving on? Or will both Tru2way and CI+ be sucked into the black hole of promising but failed open cable technology initiatives? My bet is that this time round things may really be changing. And the difference now is that cable recognises that its long-term future lies more in broadband than in the traditional pay television market. The TV set-top box has been the gateway to content for many years, but as people consumer more content on the web some of that role is increasingly shifting towards other devices such as broadband gateways, home PCs and TV sets. For sure, the set-top box is not going to disappear overnight. It will be some years before both Tru2way and CI+ are widely enough deployed to have a significant impact. And cable companies and content providers may still decide to promote set-top boxes if the new technologies fail to support future services or fail due to content security issues. But one way or another, the cable industry is getting ready for a major transition that will have widespread implications for device manufacturers and content owners alike. Client Reading: Global Broadband Forecast 2008 - 2012

Pace's agreement to acquire Philips' set-top box business seems to make sense for both parties. Pace acquires significant market share, and particularly in the IPTV space where it has been absent for some time. Philips meanwhile divests another non-core activity, while acquiring a 22.5% share in Pace. This follows the hint it gave at its recent analyst day that it was "exploring strategic options" for its home networks unit, the code sign that a deal is in the works. Besides bolstering Pace's recent recovery, the deal (which is unlikely to be finally approved until March next year) gives the company access to the Philips brand. This could prove to be the most significant aspect of the new relationship. Pace is known to be examining retail market opportunities, which would be a departure from its core service provider business relationships. But Pace is little known as a consumer brand, so a partnership with Philips makes good sense. Pace will also need to work some magic on the Philips business, which lost €39.3m in 2006 on sales of €357.2m. It reckons it can excise some costs from the operations and there should be some natural efficencies resulting from the creation of a $1bn stb vendor. A key challenge as always will be for Philips and Pace to work together to the benefit of each other's interests. Pace's use of the Philips brand should be watched particularly closely as Philips has made great strides in recent years in improving its brand position. The long-term branding plan remains unclear - the deal covers the first three years, after which presumably it could be extended or Pace will have to push its own brand alone. Both companies will be hoping this is a problem worth serious debate in three years' time as it will demonstrate that Pace's retailing strategy has had some success. Client Reading: Digital Home Entertainment Devices: Quarterly Report Q307

That's what the Blu-ray Disc Association's Frank Simonis would have us believe. I assume he doesn't mean that I will be able to buy a BD player for $25 in 2010. And if he does, I hope Philips shareholders aren't listening... Remember when DVD players cost $800? No? It was a long time ago, and it didn't last long. When they were launched in 1997 it seemed impossible that DVD would replace VHS (that's an old tape format your grandmother might have used), well, ever, never mind within 10 years. But then few people, and least of all the device manufacturers, wanted you to know that the price of a player would plummet through $200, $100 and $50 price points like a stone. Can it happen again with Blu-ray? Sony recently announced its BDP-S300 priced at $599, which is essentially the same as a device that recently cost $999, and predicted $500 players before next Christmas. My bet is we'll see them below that level, if not from premium brands. So it seems we are on at least as fast a track as DVD, and by 2010 the $100 Blu-ray player should be with us. Will that be enough to kill DVD by then? Given the huge DVD installed base, I doubt it, but it might well be feeling the first signs of old age.

Over the last few years there have been numerous IPTV conferences and events springing up all over the place, but the IPTV World Forum appears to have become the most important in Europe, and attracts visitors from all over the world. The exhibition features stands from major and smaller vendors alike - enough to more or less fill two floors of London's ancient Olympia venue, and many familiar faces were seen wandering the aisles. I hope the organisers manage to find an alternative venue for next year - visiting Olympia is a bit like emerging from Doctor Who's Tardis some time in the 1950s, and the local hotels are not much better... A few highlights worth mentioning: Vividas is giving an impressive demonstration of HD video streaming over the Internet, showing a 720p clip of Paramount's upcoming Transformers movie streamed at 1.2 Mbps. Vividas' solution involves analysing the user's PC and sending only the player elements necessary to support that particular device. In this way it reduces the payload to a fraction of the typical media player, and claims also to increase content security because there is no trace of the media file on the user's PC. Visiware, the French gaming company, is demonstrating its own solution to multi-platform gaming, so that a subscriber can access the same game on digital TV, broadband and a mobile phone, and even resume playing from the same point of the game on a different device. Visiware began life in the interactive TV space more than 10 years ago, and is one of the few survivors from that era with a global presence. Nortel's deal with NDS made most of the headlines, and Nortel is demoing the usual types of voice/TV application such IM, caller ID and video telephony on the TV screen. It's good to see Nortel positioning itself for these potential IPTV applications, but I can't help thinking it is somewhat late to the party - most of these ideas have been around if not on offer from competing vendors for some years. Industria is an Icelandic company with a focus on IPTV middleware and solutions. It has significant deals with Irish and Bulgarian operators and is planning further expansion as well as partnerships. I expect to see one or more major telco vendors bidding to work with Industria over the coming months. Oregan has built its business with Sony's PlayStation but is now branching out into CE retail through partnerships with Philips, Nokia, Samsung and others. It has high hopes for connected device solutions using its Media Browser software. It is demonstrating accessing CinemaNow and the BBC's video clips on a TV screen. They have had most success so far in Japan, but we expect to see significant movement in European and US markets over the next year or so. Finally we were treated to a demonstration of Ruckus Wireless' WiFi solution. Ruckus has created a stir with its unique antenna technology that guarantees quality of service for video streaming, including HD, over home wireless networks. It has significant deals with PCCW and Belgacom (Strategy Analytics clients will receive a report on Ruckus shortly).

Some bits and pieces from today's press conferences and tonight's excellent Digital Experience press event (I should point out that Strategy Analytics clients will get fuller details on this and other CES developments in due course).

LG got the day off to a roaring start by introducing the world's first single-drive Blu-Ray Disc/HD-DVD player. The demonstration even worked first time. But it's not a device that's likely to please the HD-DVD backers or encourage content owners to launch titles on HD-DVD as it doesn't support the HD-DVD interactive platform, iHD.

Pioneer and Panasonic gave us the usual "why plasma is best" indoctrination sessions. At least Panasonic has some products to show: Pioneer spent half an hour telling us how wonderful their completely redesigned plasma technology was but couldn't show us the product. Talk about anti-climax! We'll hopefully see the thing in action if we can struggle through the crowds on the show floor tomorrow.

Toshiba focused on HD-DVD and 1080p. A lacklustre presentation generally, demonstrating once again that if you call something absolutely amazing one year it raises the question why next year's product should be any better. HD-DVD first generation was good. Now there's a new generation. The percentage incremental improvement between the two is probably so small as to be incalculable.

We spent some time looking at Nokia's latest handheld devices. The N76 is a new slimline phone with all the Nseries features except the most important one in my view: WiFi. So I'm still waiting for the perfect phone, but it's tantalisingly close. They're introducing an upgrade to the 770 Internet tablet as well, the N800, which includes loudspeakers, a built-in stand and a webcam. I approve of the focus on sound: my 770 serves as a portable Internet radio but it barely does the job without headphones. The 800 looks like being a significant improvement.

At Digital Experience, a number of companies were showing Bluetooth stereo headphones, including iLuv (www.i-luv.com), which claimed the only noise-cancelling model on the market. I'm a big fan of noise cancelling and have been through several major brands (Sony, Philips, JVC) in the search for the best solution. Bose will be pleased to hear I ended up plumping for their latest model, the Series 3, at considerable expense but worthwhile to the regular plane using music lover. If only they could get rid of the wires.... latest versions of Bluetooth are holding more promise for high quality stereo audio.

Logitech is a company I have admired for some time. Best known for computer mice, they in fact offer a wide range of digital consumer electronics peripherals and control devices. They have recently acquired Slim Devices' internet radio device business, so I will look for evidence that Logitech's financial muscle can drive would should be a rapidly growing market for the millions of wireless home network users around the world.

Finally AOL demonstrated their latest AOL Video offering. We gave them a hard time over claims of DVD or even HD video quality, which they clearly are not offering. But the range of content available is impressive and users willing to spend up to $19.99 on a VHS-quality downloaded movie have plenty of choice. Very little content is paid for today, and that's the challenge for AOL and its content partners. There is some way to go before these models approach the mainstream.