A quick heads-up that we are offering a complimentary analyst breakfast at this year’s NAB Show in Las Vegas on April 13th. With our partners from D. I. S. Consulting we’ll be examining the outlook for the professional and broadcast industry, which has been badly hit by the recession over the past 18 months. We’ll also be presenting new research from our Digital Home Observatory to illustrate how the viewing habits of the next generation of digital consumers are evolving as a result of the proliferation of connected TV devices. Pre-registration is advised by visiting here: Event details are as follows: Breakfast Presentation from Strategy Analytics and D.I.S. Consulting: “Broadcasting in Turmoil: Recession, Recovery and Online Disruption” Date: Tuesday, April 13, 2010 Time: 7:30 am - Breakfast and Registration 8:00 am - Presentation Location: Las Vegas Convention Center, Las Vegas; Room S225 South Hall Upper Level David Mercer

We’ve covered Hillcrest Labs many times, such as here. Today the company introduced its latest offer, a web browser. At first sight it may seem like a new browser is the last thing the market needs, but this one has a key difference: it’s not designed to be used on the PC screen. It’s aimed at that growing band of consumers who connect their PCs to a TV so they can surf and watch web video from the comfort of their couch or armchair. Some browsers can be set for TV display but these options are often unsatisfactory. Hillcrest’s Kylo browser is offered free of charge. From the early demonstration we saw the company seems to have done a good job of presenting web pages more appropriately for the big screen and video consumption. As our Digital Home Observatory research has shown that connected TV viewers see the control device as a key impediment to a satisfactory experience. Using a standard PC keyboard and mouse on the couch is inconvenient at best. Onscreen keyboards can be offered for entering URLs but these are often slow and cumbersome compared to the real thing. As we’ve noted before Hillcrest’s Loop pointer deploys an impressive combination of technologies to make pointing at a screen more accurate than other motion controllers. Hillcrest’s business model is not changing as a result of the Kylo launch. While it is packaging certain web video services, it is not currently seeking to turn this into a revenue stream, although the company will watch for opportunities. Hillcrest’s primary aim and business model focus is to increase sales of its control devices. David Mercer Client Reading: Touchscreen Controllers Set to Drive the Connected TV Experience

As we reported today, the global IPTV subscriber base reached more than 30 million households last year. It's difficult to imagine that major vendors such as Alcatel were predicting 100 million by this stage a few years ago. That sort of over-optimism is hardly new, but in this case reflected a failure to appreciate the strategic challenges facing telcos as they entered the TV market. My colleague Ben Piper suggests that the IPTV market globally may be hitting a speedbump: perhaps it just never built up much speed in the first place. IPTV was supposed to be different. The built-in ability to integrate communications services with content delivery, together with one-to-one targeted delivery, would enable powerful and compelling new features and experiences which would help telcos leapfrog their established competitors in the cable and satellite industry. But instead of changing the game most telcos which offer IPTV today still play to the rules originally fixed by the incumbents. Most could not avoid getting dragged into content rights battles and disputes, and few if any have deployed the sort of exciting advanced capabilities which have been on show at countless exhibitions over the past decade or so. Which brings us to this year's IPTV World Forum, opening tomorrow at London's Olympia. Ericsson gave us a preview of its announcements this evening, which are encompassed by the new tag-line “End-to-Endless Television”, or “E2E TV” for short. Sure enough they include subjects such as on-demand advertising, new connected IP devices and hybrid solutions. Without doubt what I am most looking forward to seeing is Ericsson's IPTV Remote. Someone will explain to me one day why a home device with no obvious cellar network implications was launched at Mobile World Congress; in any case now that the mobile phone industry has seen it we await reaction from its core target customer base. Ericsson describes the IPTV Remote as the best thing they have done in a long while. The challenge for Ericsson, like its competitors, is that it does not sell these products to consumers, who are the end users, but to service providers and operators, who decide what they think their customers will want and will make them money, before making them available to the likes of you and me. Ericsson carries out a lot of its own consumer research to identify future customer needs, but it still has to persuade its operator customers of the validity of these predictions. Many of these scenarios sound good in a Powerpoint; Ericsson’s own presentation sees the future of TV as “blended services”, “converged interactive communication”, and “your media anywhere, anytime”. I hate to sound like a weary old cynic, but we have heard these promises more than a few times over the years. But I do look forward to seeing the IPTV Remote in action, and maybe, just maybe, this 10” touchscreen “tablet” (definitely not an iAnything) will persuade operators that their customers might value their service over their competitors for the privilege of using a particular device, rather than receiving targeted ads or first run movies. Our own research showed TV viewers are waiting for touch screen controllers, so Ericsson may be on to a good thing. David Mercer Client Reading: Orange's IPTV Challenge: Create a Non-Content Differentiator

We were also with Technicolor today to see its latest capabilities in 3D production and distribution and hear about the company's strategy. Technicolor is the new name for Thomson. The company is still trying to sell Grass Valley Group, so its strategy as presented today assumes an absence of GVG's divisions. A key question for Technicolor and its competitors in the content production and distribution space will be whether 2D-3D conversion technologies will remove the need for 3D content origination. Sky has reportedly announced that it will refuse to accept any 3D television which has been converted from 2D, which is a good sign for the many vendors hoping to profit from this opportunity. But 2D-3D conversion is still likely to feature in consumer products such as TVs. Technicolor's position is that these technologies will actually help to fuel demand for 'true' 3D, which will always provide a better quality experience than the alternatives. This seems like a reasonable position to take at the moment but vendors should watch carefully for progress in 2D-3D conversion technologies which could disrupt the market over time. David Mercer Client Reading: Global Audiovisual Market Forecast

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

Cisco built up yesterday’s big news announcement as something “that will forever change the Internet and its impact on consumers, businesses and governments”. The chances are slim that more than a tiny fraction of consumers, businesses and governments will ever actually encounter the catalyst for this revolution, namely the new CRS-3 router, which will help service providers deliver the vast quantities of video that people will expect to consume over the internet in the coming years. So in that sense, the announcement was a slight disappointment, if none the less significant. Shortly beforehand, the news arrived that Cisco had also became a strategic investor in SiBeam, Inc. Also currently unknown to most consumers, perhaps, but SiBeam’s wireless video technology could become ubiquitous over the coming decade. We’ve covered it many times, most recently here. For some years SiBeam has been in a race with various other technology developers, and primarily Amimon, to bring wireless distribution of high-definition video to the digital home. While early consumer products have reached the market in limited numbers using both SiBeam and Amimon solutions, sales performance has been restricted by high prices. We are also hearing that Amimon’s technology has not proved as reliable as it needs to be, and as we predicted before, we believe the momentum is in the direction of WirelessHD, if there is indeed going to be a single de facto standard. Cisco joins other major consumer technology investors Samsung, Panasonic and others in backing the WirelessHD 60 GHz technology. So as well as investing in the future of internet video distribution, Cisco is counting on tomorrow’s in-home video networking technologies to build its vision of a world of networked video. David Mercer Client Reading: Wireless High Definition Appearing Soon at a Home Cinema Near You

"Life used to be easy,” says Duco Sickinghe, CEO of Belgian Cable operator TelenetOnce upon a time, the company had only to worry about keeping its television customers happy. Today it faces a new competitive reality; one where the triple play bundle of voice, video and data has become table stakes, and effective differentiation is paramount. Indeed, the entry of Telco companies into the television arena has been disruptive to the industry, putting satellite and cable companies on the defensive, while at the same time opening new points of entry into the subscriber’s household. In short, all bets are off. Increasingly complex  product offerings have catapulted many consumers into a state of perpetual confusion. While Cable as an industry has burnished its image in many Western European markets, in others it does not have the same history or credibility. And research suggests that it would be unwise for any operator to take its customer’s loyalty for granted. A survey fielded by Strategy Analytics in Q2’09 shows that stated satisfaction among Western European Digital Television customers is quite high, with 63% reporting to be either “somewhat” or “very satisfied” with their current service. However, when presented a competing offer, 20% cheaper, a full 45% said they would make the switch. Cable’s competitive positioning varies by country, though historically it has been portrayed as a “value offer,” competing largely on price. While there is much talk of evolving cable into a premium offering, Strategy Analytics’ research confirms that consumers are still relatively price-sensitive. The same survey showed that, irrespective of platform, Western European digital television consumers have a low perceived “value for money” from their provider, with only 21% saying it “exceeded” or “greatly exceeded” expectations. Even lower-rated was customer and technical support—with only 12% finding their provider to exceed expectations. The challenge facing operators, then, is to simultaneously and consistently demonstrate value for money and service excellence. Nobody said it was going to be easy.

As promised, a quick preview of our games console forecast which will be published early next week. No surprise that Nintendo’s Wii stands in the lead at the moment, within the current generation of systems, in terms of global installed base. We estimate that there will be nearly 76 million Wiis in use worldwide by the end of 2010. But the signs are that the Wii has peaked in terms of console sales, and its installed base will begin to decline after 2011. Meanwhile, Sony’s PS3 and Microsoft’s Xbox 360 will continue to grow, so that the PS3 will become the largest platform globally by 2013. In terms of cumulative lifetime sales we expect the PS3 to hit 127 million units, compared to 103 million Wiis. These estimates are derived from our core forecast scenario, but we have developed various scenarios for each platform. Uncertainties clearly surround each of the major platforms, particularly relating to the new services and upgrades planned by Sony and Microsoft. Natal on the Xbox could be more beneficial to 360 sales than expected, and Sony’s own motion controller, together with its plans to upgrade all PS3s to 3D capabilitiy, also represent potential for upside to our core forecasts. This year’s global market for consoles is likely to fall again, after a 6% decline last year. For 2010 we are predicting global console sales of 47.5 million, a 9% decline.The Wii will account for most of that decline: sales of the PS3 and Xbox 360 are predicted to increase. David Mercer Client Reading: Global Video Game Market Forecast

As a long term Sky TV customer I’ve often been frustrated at the lack of attention the company gives to its loyal customers relative to its interest in winning new ones. While I understand the business goal – winning new customers is always much more expensive than retaining existing ones – as a customer it can leave a sour taste in the mouth. That taste was sweetened this morning by an unexpected call from Sky customer services offering me a new HD DVR, together with 12 months’ subscription to HD channels, all at no additional cost. No set-top box charge, no “set-up fee”, no installation charge, no further commitment. The normal fee for an existing Sky customer to upgrade to this package, as still described today on the company’s website, is £180 - £60 set-up cost plus 12 months of HD channels at £10/month. From £180 to zero – that’s what I call a discount. I couldn’t let the fact that I don’t yet have an HDTV, or my general rule to reject all cold calls, prevent me from accepting this offer. Sky’s latest HD DVR should represent a vast improvement over my 9-year-old Sky+ model, in speed and ease of use, interface and EPG, and storage capacity. I won’t get the benefit of the HD channels, but maybe, just maybe, those free channels will be enough of an incentive for me finally to replace my CRT TV. Sky’s initial financial loss on this, and presumably many other HD upgrades, results from their determination to remain competitive in the years to come. The resistance of many of their customers to subscription fees is high, as shown by our own user research. We found that, while Sky’s overall satisfaction ratings are high, more than a quarter of Sky’s customers would switch to another provider offering the same service for 10% lower monthly fees. We also found that more than a third of Sky’s customers do not rate the company as meeting expectations on value for money. With this new offer, although it is limited to selected existing customers, is aimed at the right spot: to make sure its subscribers are not lured away by competitors such as Freeview HD, Freesat HD, Virgin Media and BT Vision. While none of these alternative providers offer the exact same package as Sky, they are each, in their own way, becoming more competitive in certain aspects. Slowly but surely it seems as though the UK pay and multichannel TV sector is finally opening up to greater levels of competition. Whether Sky’s financials can withstand the impact of these customer retention strategies remains to be seen. David Mercer Client Reading: BSkyB Results Shine But Warning Signs Evident In Customer Value Ratings