We don’t do this very often folks, but as a seasonal gift we have made our 2011 Digital Home Predictions report available to everyone, whether a Strategy Analytics client or not. You can download the full report here. A lot of the talk at the moment is about Google’s troubles with its TV offer: there will be little to see at CES after all, much to the annoyance of Google’s many partners no doubt. But this setback should not be seen as a a sign of general malaise in the connected TV industry: Apple has just reported that its TV solution is finally gaining some traction, and we expect continued progress from other key players in the rollout of internet TV to the big screen during 2011. We may even see Facebook moving into this space. Headline number of the year will be tablet revenues, which we predict will exceed netbooks. We also think Apple needs to revamp iTunes to take account of the connected device era, and Nintendo may have to take the plunge and launch the successor to the Wii. We’ll see further innovations in the TV control arena, with touchscreens, phone apps and motion control all featuring more widely. But 3DTV is likely to see only slow progress: sure, people will be buying 3D-enabled sets, but less than 20% will be watching 3D content on them. And one more stat to whet your appetite: more than one billion people worldwide will be using social networks for the first time during 2011. And since you are one of them, please go ahead and read the full report, and any comments and feedback are always appreciated. Best wishes for a peaceful holiday season. David Mercer Client Reading: Profiling the Connected Media Consumer - UK

Two thirds of people who are thinking of buying an iPad in the next 12 months are expecting to pay less than the current lowest retail price, according to the latest research from our Tablet and Touchscreen Strategies service. 66% say they will pay less than $500 or €500, and half of those say they want to pay less than $300 or €300. We surveyed nearly 5000 consumers across the US and 4 major European markets. These findings won't concern Apple too much as there is enough momentum from early adopters to support growing iPad sales for the next few months. But they should serve as a clear warning that today's price points are unsustainable in the longer term. Already we are seeing a proliferation of (mostly Android-based) tablets arriving on retailers' shelves, often at iPad-undercutting prices. Staples is offering a 10" Viewsonic, Android 2.2 device at $400. I am awaiting delivery of a £150 7" Android 2.2 tablet from UK electronics specialist retailer Maplin. Clearly these devices will not match Apple in every respect; many observers doubt whether the latest versions of Google's OS are up to the job. But then the question is what "job" tablets are expected to carry out. iPad behaviour so far has been truly multifunctional, with a mix of games, browsing, video, communications, and the huge variety of apps which are impossible to categorise. I overheard one potential tablet buyer in Staples inquiring (of the Viewsonic device) whether it was good for reading books, and specifically whether it could do "things like Kindle". Unfortunately she happened to address the question'to a sales assistant who claimed to be "still training" on these devices and so couldn't commit to an answer. But the fact that customers are inquiring about specific capabilities suggests that all-round superiority may not necessarily be a requirement for tablet market entrants hoping to eat into Apple's dominant market position. That's not to say that device implementations shouldn't pass the bare minimum of usability requirements. There are still too many early Android devices floating around which really are not fit for purpose, even if they are practically being given away. Consumers want to pay $300 or $400 but they expect something that does at least a few things reasonably well. The sooner Android matures and its partners introduce devices to undercut the iPad, the better for the tablet market as a whole. Client Reading: Apple's iPad: Users, Buying Intentions and Price Expectations

I never thought I would hear it, but the buzz on the streets of Essex, that trend-setting county just east of London, is that Research in Motion (RIM)’s BlackBerry handsets have now replaced Apple’s iPhone as the gadget of choice. I should immediately qualify this “finding” as purely anecdotal research, based on a conversation with my 13-year-old niece this past weekend regarding her latest phone, acquired because, as all parents will recognise, “all her friends have got one”. It doesn’t seem five minutes since she was demanding the latest iPhone, hence my surprise that the BlackBerry has risen so rapidly in the teenage desirability league table, at the expense of the apparently unstoppable iPhone. My colleague, Andy Brown, our resident RIM expert, assures me that the Canadian company has been promoting the BlackBerry as a consumer device for some years, largely by advertising it in the hands of celebrities. In spite of those efforts I would argue that it is still commonly perceived as a business-centric device. Nevertheless, consumer sales of BlackBerrys have been rising rapidly, contributing to RIM’s impressive overall performance in the mobile phone market. I was obviously keen to learn why today’s younger teenagers are apparently bucking the accepted trend towards using touchscreen, button-free devices. The QWERTY keyboard, according to my niece, is in fact one of the appealing features of the BlackBerry, since typing messages is so much easier. And it turns out that messaging appears to lie at the heart of RIM’s success in this segment: the ability for young friends to send each other messages using RIM’s BlackBerry Messenger (BBM) service, completely free of charge, has huge appeal to the device’s owners as well as their parents, concerned at rising monthly bills. So the obvious question is, what happened to the apparently eternal appeal of an unlimited choice of apps, as well as 4” touchscreen displays? At least for this small sample, it seems they are now considered of secondary importance. For my niece and her group of friends, the ability to stay in touch via near-constant, rapid messaging, and at zero additional cost, is what matters most. Whether that will be the case as they get older remains to be seen, but it’s a reminder that one device format is unlikely to suit the needs of all segments, however successful a particular product may appear. “With iPhone, every handset works the same,” said Apple’s Steve Jobs during yesterday’s results call. Yes, Steve, they do: and it seems, amazingly enough, that some people really don’t need it that way. Client Reading: RIM Announces PlayBook Tablet and Multiplatform Strategy

Embarrassing Apology of the Week Award goes to Sky for the following email just received by its UK customers: “In our recent newsletter - 'This week on Sky Player' - we did not make it clear that in order to watch live Sky Sports for free on Sky Player until 31/12/2010, you need to subscribe to Sky Sports 1 & 2 on Sky TV. We apologise and hope that this did not cause too much confusion.” The company presumably has received complaints from confused customers who do not currently pay for Sky Sports on TV and assumed, naturally enough, that when Sky told them they could watch Sky Sports for free on Sky Player, they could watch Sky Sports for free on Sky Player. In fact, the email should clearly only have been sent to customers who already pay for Sky Sports on TV, or worded very differently for all customers. No doubt the company’s apology is also intended to ward off any possibility of a regulatory wrist-slap. It’s a little unfair, if rather easy on this occasion, to pick on Sky for its misleading communications over bundled service offers. But this episode does highlight the age-old question of when “free” really means “free”. My own father, who was fond of repeating the well-worn cliché “there’s no such thing as a free lunch”, would probably say “never”. And perhaps consumers in the 21st Century have been bombarded by so many unlikely offers that they are simply inured to misleading advice. The details, after all, are usually in the fine print, if anyone can be bothered to check. What’s the difference, after all, between Sky offering “free” Sky Sports to its paying customers, and mobile phone customers offering “free” texts to its paying customers? Or “free” mobile phones to customers who have to pay money to use them every month? To quote Orange’s current Monkey offer: “Get free music, texts and a free daily internet pass, just for topping up £5 on Monkey”. So, spend money to get something free. These “offers” are such an established feature of bundled service marketing (and commercial life in general) if anything it's surprising that Sky felt the need to respond. A liberal deployment of asterisked fine print should help Sky avoid similar problems in future. Client Reading: Apple TV: Still Just a Hobby? Or Another Nail in Pay Television's Coffin?

It’s no surprise that a majority of early iPad buyers had already bought into the Apple ecosystem, but the fact that fully 90% of people who say they will buy an iPad during the next 12 months already own an Apple device is perhaps surprising. It might have been reasonable to assume that the novelty of the tablet form factor would open up a whole new wave of potential customers attracted by its innovative design, regardless of how familiar they were with the benefits of Apple’s user interface and design. It seems, however, that in the early days at least demand for the iPad will be met almost entirely by existing Apple owners. Our survey of 2000 US consumers also suggests that a third or more of existing iPhone and Macbook owners have already gained access to an iPad (at least they say they have used one at home). And nearly a half of the early iPad adopters say they are somewhat or very likely to buy another iPad during the coming year – an indication of strong customer satisfaction if ever there was one. So how should Apple respond to this news? On the one hand the company should relax in the knowledge that so many of its core and loyal customers are saving up to buy the company’s latest device. On the other hand, there may be just the slightest concern that the iPad has so far failed to win new hearts and minds amongst the half of US homes which do not already own at least one Apple product. That may change as the tablet category becomes more widely recognised. New entrants will shortly be flooding the market with iPad alternatives which will help raise general awareness of this new category. As Apple struggles to meet demand from its existing customers, the opportunity is there for competitors to target the remaining market segments with iPad alternatives. Client Reading: Apple's iPad: Identifying Early Adopters and Intentions to Buy Meet Our Analysts: 3DTV Analyst Forum at IBC 2010

Returning to temperate climes after my first “summer” visit to Las Vegas, I am more amazed than ever at Nevada residents’ ability to withstand daily temperatures of 40 degrees plus and practically zero humidity. At least I now know what 108 Fahrenheit feels like. The contrast between this and a proper British summer (a few days of 25C followed by cool cloud and rain) could not be more stark. Las Vegas’ Mandalay Bay was the venue for Cisco’s annual customer gathering, which this year also brought together a hundred or so analysts for in-depth discussion of product and commercial strategy. The highlight product announcement was the Cius, as reported by my colleague, Susan Welsh de Grimaldo. While the company has not officially announced pricing, I expect it to be closer to $1000 than $500. Cisco is quite clear that the Cius is positioned as an enterprise solution, and these prices are likely to prevent much leakage towards “unofficial” consumer markets. What was most interesting, perhaps, is the genesis of the Cius within the Cisco organisation. It was obvious from many conversations that few people were aware of its development until very shortly before its unveiling. Even John Chambers himself claims to have been unaware of it until two months ago. If the product proves successful it will be further justification of Cisco’s innovation in organisation and management which allows dynamic cross-fertilisation of ideas across multiple teams. The other news centered on home energy management, where Cisco is launching a “Home Energy Controller” allied to Cisco Energy Management Services, which will be offered by utility companies to help consumers understand and control their energy consumption. The Controller uses Zigbee, WiFi and other home networking technologies to exchange data with and, potentially, control a variety of home devices. Much of our discussion with Cisco execs centered on the challenges and opportunities for service providers offered by OTT video, as well as the potential for telepresence in the home environment. Telepresence has a been a success for Cisco in the corporate market, and it is still on track to bring a consumer solution to the market by the end of 2010. It still strikes many people, both in the industry and consumers, as odd that Cisco should have a serious consumer strategy. While its brand presence is growing, not many would consider it as a competitor to the Sonys, Samsungs and Apples of the world. And there is no doubt that the company’s financial power is built on its core network switching and routing market dominance. Cisco does have key positions in home networking and set-top boxes, as well as the TV and broadband service provider space, but the jury is still out on whether Cisco itself will become an overall leader in consumer markets over the next decade. But consumer players cannot ignore Cisco as an influence on market direction. Its innovation processes, as demonstrated by Cius, will combine with its financial strength to create a wave of consumer innovations over the coming years. Many may fail, but it will only take a few to be successful for rivals to feel the heat. Client Reading: Chasing the Elusive IPTV Business Model: NDS, Cisco and Comcast to the Rescue?

Is it a sign of Trouble at’ Mill? Or just another corporate shake-up while business goes on as usual? Microsoft yesterday announced the departure of leading Entertainment and Devices executives Robbie Bach and J. Allard. Microsoft CEO Steve Ballmer will take charge of the division, with Don Mattrick running the Xbox side and Andy Lees the mobile business. There are clearly problems for Microsoft in its mobile business. All the various iterations of its mobile phone software over the years have failed to make significant market impact as Apple and, now, Google, make the running. Microsoft’s biggest problem is that consumer is still a relatively small and fragmented part of its overall business. It’s losing out to Apple, and others, in the consumer market because its primary corporate focus continues to be business users of Windows. Apple, which, not through lack of effort, never achieved prominence in business markets, has been able to focus its strategy on the consumer space without the hindrance of adhering to a corporate software strategy. From Microsoft’s perspective it might seem logical to group Xbox, music players and mobile phones under one roof, but this makes less obvious sense to the outside world. Xbox has been successful largely because it has been left alone to formulate its own strategy focused on games, entertainment and the digital home. Dan Mattrick, whom I met last summer to discuss Xbox strategy, should now try to persuade Ballmer that the Xbox team needs to remain a discrete unit with liberty to forge its own direction, and if necessary outside of the demands of the corporate Windows strategy if necessary. With the launch of Natal imminent, the continued ramping up of online services based around the Xbox 360, and the plateauing of Xbox 360 sales, Microsoft can ill afford a dilution in focus because of this disruption to the senior management team. David Mercer Other Blog Posts Of Interest: PS3 Global Market Share Reached 31% in Q1 2010 Sony’s PS3 to Win Current Games Console Battle; SA Forecasts 47.5 Million Global Console Market in 2010 Sky Player Finally Arrives Where It Belongs, But Work Still to be Done TV or Videogame? 1 vs 100 on Xbox Live Offers Lifeline To Appointment Viewing Client Reading: Taming the Waves: Games Console Life Cycles and Platform Competition

Apple cynics seem to have taken the initiative following the announcement of Apple’s iPad internet tablet. I tend to shy away from anything as hyped as this product has been. Surely the most hyped Apple device ever... And for that reason alone I am feeling underwhelmed. Is the iPad really what this was all building up to? Let's think about the applications: Books - ok, I get this. if you want e-books this seems like a reasonable way to carry and read them. A nice way to read newspapers as well – I’m not sure the publishers will make money from it though. Web browsing and applications - I suppose the brower must work well. This is definitely the primary set of apps in my view. Consumers need an easy and fast way to get to websites quickly when they’re at home and don’t want to boot up the laptop. Music - ok, but who would rather listen to their music through a 1.5 pound portable device with (presumably) tinny speakers rather than either a) a small iPhone/Pod plus headphones, or b) plus docking device? Photos - yes of course – iPad could be a very nice digital photo frame. Games - could eventually become a killer app but control and input functions will need to be adapted to a larger screen device and iPhone app developers need to get to work to match the screen's HD resolution. Productivity applications - I'm struggling here. is this really how the iPad is going to get used? The virtual keyboard may be good, although early reports are not promising. But think about how are people going to hold or rest this device: sitting down in a chair - it would have to rest on the flat table, so you are leaning over it to use it properly. Sitting in an armchair - so it's on your lap, but again you have trouble positioning the screen at the right angle; or standing, so you hold it resting in one arm and only have one arm free to touch the screen. Or you use a stand and add-on keyboard, and it becomes... a laptop! OK, maybe the iPad could be used occasionally for productivity applications, but I just don't see this device as a breakthrough for work-based devices. and finally... Video. Video playback is reported as stunning - I can believe this. But where are the extra video content applications or TV deals? The specialised video apps like TV-transfer? No HDMI for TV connection? Apple seems to be struggling more than ever to break into the home video market in a big way. And no multi-tasking… this is crazy. I can't play music while I surf?! Form factor: maybe I was expecting too much from Apple, but really the iPad is hardly a revelation. Have they done what we expected? ie take all previous tablet-type implementations, improved on them and added innovative style and usability and content integration to create a unique package? I don't see this from what I've read and seen. And it's too heavy to be held in one hand, much heavier than some e-readers. Wireless: So the key question - how often would this device be used in truly mobile situations, and of those situations, how often would a user need to have cellular data service? The cellular service can be bought ad hoc - and I think it will be primarily. Not much new recurring revenue for carriers there then... The iPad is surely primarily a “free data” wifi device. It doesn’t need always-on connectivity for messages and voice - I'm always going to carry a phone for those. I can get online for websites and apps via hotspots when needed, and primarily use my home broadband to load it up with content. Having said all this, of course the lower than expected price points mean they will sell millions to Apple fans who won't blink at spending another $500 on the latest Jobs gizmo. (And did anyone at Apple really not investigate the unfortunate connotations of the device name for the female market? - one wonders if Jobs has really lost his touch.) Client Reading: Consumer Imperatives for Digital TV Media Browsers

When I switched my home television service  from DirecTV to Comcast last summer, the slick sales guy on the other end of the line promised me that I would be receiving an identical channel lineup to the one I was currently receiving.  “Apples to apples,” he promised. “Only cheaper.”   What’s not to like? You’d think that I, someone who gets paid to research and write about digital television, would have done more due diligence on his own account.  I didn’t. So, when it became apparent that two “must have” channels for me (NatGeo and BBC America) were not in my Comcast tier, I called again to inquire.  Seems that to get those, I would have pay an additional $15 a month to buy up to the next highest tier, one filled with numerous channels of no use or interest to me.   Suddenly the calculus changed.  This was no longer a good deal.  

This time, it’s not coming from the FCC

Recent movements suggest that change may be afoot.  No sooner had Comcast announced the launch of its OTT-mitigating Fancast Xfinity TV service than rumors started circulating about Apple’s talks with CBS and ABC.  Seems the folks in Cupertino are mulling a subscription-based video service, obviating the need for iPhone/iPod users to depend solely on the Apple iTunes service for downloads. If the Apple service is successful at elegantly bridging  the '’screen gap,” and delivering compelling online content to the tv screen, it could fundamentally alter the way MSOs sell content.  The much maligned “bundled” system currently in place, whereby consumers are required to purchase content in blocks of channels--rather than individually--could finally be on the chopping block.  And that’s good news. What is interesting, though, is that the catalyst for this change will be the market—not a government mandate as previously feared. A la carte used to be somewhat of a cause célèbre in the television world, and one that the FCC has been wrestling for years. It was only the more recent emergence of “net neutrality” that has stolen the spotlight from the issue. Former FCC Commissioner Powell’s administration commissioned a 2004 report finding that, under an mandated a la carte scheme, customers would end up paying more.  That report has since been largely discredited and found to be riddled with misinformation and half-baked analysis.  Successor Kevin Martin embraced “cable choice,” though apparently more for the way it allows parents to monitor and block channels, than for household consumer budgetary reasons. One analyst firm  rather dramatically predicted ‘economic ruin’ if the FCC went ahead with its plan.

Who moved my talking points?

Government-mandated a la carte is bad for cable consumers, who would wind up paying higher prices to receive the same level of service and fewer channels than they receive today.”-NCTA Issue Brief, January 2009

The National Cable Television Association (NCTA ) talking points were crafted to respond to a possible “government takeover” of television.  In the context of a market driven change, the memo reads somewhat differently.  Most of the arguments fly out the window, and the market will call the cable industry’s bluff on the supposed technological barriers to offering personalized programming. As usual, the problem does not lie in the technology, but rather in the business model The very nature of cable advertising is in flux, brought upon largely by digital television.  The 30-year old model in place today, whereby flagship channels lead certain tiers and support fledgling new ones, could be facing some changes.  While the NCTA estimates that half of cable companies’ revenues come from national ad sales, this is certainly shifting.  Intelligent two-way networks will herald in addressable advertising—the next step in demographic targeting. Indeed, vendors I spoke with only months ago alluded to some “user identification” scenarios that could pinpoint actual viewers within a household, based on their “jitter signature.”  Seems that we all shake and tremble in our own unique ways, and it is possible to use these signatures like fingerprints, and serve up completely targeted advertising.  To be sure, , vendors will need to overcome the “creep out” factor first, but the general idea is the same.  Linear advertising as we know it is going the way of the dodo, and the MSO’s ‘old math’ will need to change.

It’s not about choice…it’s about the illusion of choice

Our research shows time and time again that consumers are tired are feeling that they are being screwed by their pay television providers.  The nickel and diming in all aspects of consumers’ lives has grown out of control.  Our latest survey work (to be published in Q1) found that only about 20% of pay tv customers felt that the ““value for money” they were getting from their pay television operator exceeded expectations. Part of the issue is consumers’ feeling that they have no control, that they are somehow being  taken advantage of.. Choice—or more importantly, the illusion of choice—is an extremely powerful tool.   Think of the immensely popular Build a Bear Workshop franchise, whose stores dot shopping malls across the world.  BABW allows customers to design and personalize their very own stuffed creatures by visiting eight “stuffed animal-making stations,” where they can choose (and buy) everything from stuffing to clothing.  The concept has been a huge hit, and the company is now a $300 million/year concern, with over 400 stores worldwide.  What is the secret to the company’s success?  Certainly not selling adorable plush animals; anyone can do that.  Rather, BABW has perfected the illusion of choice and flexibility.  All customer start at the same default position: buying a bear.  The trick is, they end up paying more for the additional  features relevant to them.

How about “Build a Bundle?”

What prevents MSOs from employing a similar strategy—allowing customers to design their own bundled offerings?  All would start at the same default position, the $XX/month basic tier.  The real money comes in the add-ons.  Critics say this is not how advertising works in the cable industry.  Guess what?  It’s about to change. My (still untested) hypothesis is that, if customers were given the choice to “personalize” a  television bundle, ARPUs would actually increase--or at least stay the same.  Allowing them to configure a package conveys the illusion of choice and control, and makes customers think they are in the driver’s seat. Sounds like a great project-opportunity…phone lines are open if someone out there wants us to test the concept.

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