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

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

The only thing in the middle of the road are dead skunks and yellow lines

Or so goes the Texas adage. Today’s 3-2 FCC vote on rules pertaining to so-called “Net Neutrality” may once again prove that compromise guarantees only one thing.  That nobody’s happy. The debate, which has been a five year long rollercoaster ride, came to a head in what is being described as “rules of the road” for the Internet. The inherent fuzziness of the provisions, which include such vague concepts such as “transparency,” “network management,” and “unreasonable discrimination” all but guarantee that the matter will ultimately be decided in the courts. Furthermore, the same rules don’t apply to fixed and mobile networks.

Fair to Middling

FCC Chairman Julius Genachowski made a point of characterizing the rules as “middle of the road” approach—though likely one where no side even feels a little bit ok about it. “On one end of the spectrum, there are those who say government should do nothing at all, on the other end of the spectrum are those who would adopt a set of detailed and rigid regulations.” The Chairman said he rejects “both extremes in favor of a strong and sensible framework - one that protects Internet freedom and openness and promotes robust innovation and investment."

A Little Hyperbole Goes a Long Way

Indeed, critics are vocal on both sides, with opponents comparing it to the “government takeover of the Internet,” and Net Neutrality supporters calling it “worse than nothing.” Outspoken Senator Al Franken calls it the “most important free speech issue of our time,” and surmised that “ If corporations are allowed to prioritize content on the Internet, or they are allowed to block applications you access on your iPhone, there is nothing to prevent those same corporations from censoring political speech.” Republican FCC Commissioner Robert McDowell, in a Wall Street Journal Op/Ed piece said that the new rules will squelch innovation and investment, and reflect more “coercion than consensus or compromise.” He goes on to say: “On this winter solstice, we will witness jaw-dropping interventionist chutzpah as the FCC bypasses branches of our government in the dogged pursuit of needless and harmful regulation. The darkest day of the year may end up marking the beginning of a long winter's night for Internet freedom.”

Netting Out Net Neutrality

It’s still not over

It’s not over—not even by a long shot. April’s ruling by the U.S. Court of Appeals for the District of Columbia challenged the very role of the FCC in regulating broadband. Certainly, this is yet to be scrutinized and debated in Congress, and ultimately in the courts.

Please Have Exact Change

While the rules voted on today preclude service providers from blocking “lawful content,” they apparently do little to discourage the practice of “paid prioritization. ” The rules, set to go into effect in 2011, create a “toll road” of sorts on the metaphorical information superhighway—a road that companies such Google and Netflix may be forced to take.

FUD Factor 2.0

Markets don’t like fear, uncertainty and doubt. We all know that. And while Chairman Genachowski suggest that the rules “increase certainty in the marketplace, and spur investment both at the edge and in the core of our broadband networks”, the result may be just the opposite. Well, that’s what it smells like anyway.  -Ben Piper

At 4.30 yesterday afternoon I wished Anthony Rose well for 2011. He agree it was going to be an exciting time, as YouView moves into the launch phase, and gave no indication that within a few hours he would be stepping down from his high profile CTO role. Rose had just given another presentation on the progress of YouView, the broadband TV joint venture "spearheaded" by the BBC. As YouView's figurehead Rose, in a short time, had become a star attraction on the conference circuit, and I dare say a fair proportion of the packed audience (by no means just from the UK) at Informa's OTT TV World Forum were there primarily to listen to his latest update on the project's progress. In a one-to-one discussion after the panel, I had been asking Rose about the potential compatibility between the YouView system and hbbtv, the broadband TV standard being deployed in Germany and elsewhere in Europe. I'll bring more on this subject at another time, together with the views of hbbtv itself. During the Q&A one or two people noted the challenges of getting YouView to publish its guidance documents in a timely fashion. One questioner noted that he had learnt more about YouView in ten minutes of listening to Anthony than from reading hundreds of pages of documentation. Rose admitted that keeping the project on schedule, as well as meeting the information demands of multiple external stakeholders, had proved challenging. Today's news stories are suggesting that Rose was not considered capable of managing YouView as it moves towards the commercial deployment phase. He will stay on in "an advisory role", but this hardly smacks of a vote of confidence. Advice is one thing: the responsibility for taking decisions will clearly rest on new shoulders. YouView is inevitably putting a gloss on the development, which will come as a shock to many in the IPTV industry. Management turmoil is rarely a good thing, so if YouView is to meet its ambitious mid-2011 launch target it needs to rally the troops and have its new managers get the word out that they understand and can meet the challenges ahead, without losing the vision which Anthony brought to the project. Many YouView doubters remain; the battle with Sky and Virgin rumbles on, and a lot more water will flow under the bridge before the next phase in television's evolution becomes a commercial reality. Client Reading: Profiling the Connected Media Consumer - UK

As I prepare to chair a panel discussion on television advertising at this week’s Future TV Advertising conference, I thought I would dip into our consumer surveys to see what people are telling us about their attitudes towards advertising. For reference, our survey was based on a weighted sample of 2803 online respondents across France, Germany, Italy and the UK, and was fielded between July and September 2010. One of the issues often discussed at such conferences is the degree to which viewers enjoy advertising on television. Our survey found that only 7% of Europeans strongly agree that they “enjoy watching and listening to well produced and informative commercials on television”, and another 26% somewhat agree. But 23% strongly disagree that they enjoy watching commercials, and another 16% somewhat disagree. This gives a negative “balance” of -6% overall on the question of how much people say they enjoy watching TV ads; you are three times more likely to find someone who dislikes TV ads as someone who really enjoys them. The irony is that Europeans do appreciate that advertising plays an important role, even if they don’t like watching the ads. 51% somewhat or strongly agree with the statement that “advertising plays a useful role since it pays for the cost of providing entertainment”; only 31% disagree. There is even stronger agreement for the idea that all television should be “free” at the point of consumption: 65% of people somewhat or strongly agree with the statement “No one should have to pay for television; all programmes, including all sports and movies, should be available to everyone and supported by advertisements or public funding”. Only 24% disagreed with the idea that all television should be free. Not surprisingly (given that pay TV is most successful in the UK) the strongest support for this idea came from viewers in continental Europe, with 72% of French respondents in agreement. UK respondents are markedly different in their atttitudes towards free TV: 49% agree it should be free, but 32% disagree, giving a net balance of only 17%, compared to 58% in France. We found similar love-hate attitudes towards advertising in online television. People are very resistant to the idea that they could pay in order to avoid advertisements, but they also don’t like the fact that they have to watch adverts before an online TV show starts, and they think there are too many short adverts in online video content. So the challenge for advertisers appears to be the same as it ever was: getting a message across and engaging with viewers who are generally resistant to commercially motivated communications. Whether technology and innovation can help ease that process over the years ahead remains to be seen. Client Reading: Global Advertising Market Forecast

Already heated tempers reached a boiling point last week in the current mêlée between Fox's parent company, News Corporation and New York-based Cablevision. At issue is the question of "retransmission," the fees cable companies must pay networks to carry their programming in the line-up. In the latest salvo, News Corp elected to deploy a "nuclear option" of sorts--blacking out not just Fox channels, but also Cablevision subscriber access to sites such as fox.com and hulu.com. The access blocking, while short-lived, sent a clear message-Fox holds the cards. Was this move a shot across the bow of `traditional' cable, as some have suggested, or rather a shot in the foot for News Corp?

This Whole ‘Cord Cutting’ Thing?  Yeah, it’s Here to Stay

Dismissing or minimizing the severity of cord cutting has been de rigeur of late in the analyst community.  Many service providers and industry pundits alike have effectively buried their heads in the sand for the past 18 months over the issue, writing it off as “over hyped phenomenon.” Survey research we just fielded suggests that doubters might want to rethink their position.  According to the survey of 2,000 Americans in late Q3’10, 13% intend to drop their pay TV subscription in the upcoming year—and not replace it with another one.  We have long held that cord cutting is a very real problem, and what we’re seeing now is likely just the tip of iceberg.  What happens when today’s teenagers start controlling the pocket strings in five or ten years?

120 Channels and Nothing On

The average US household receives nearly 120 channels, though many would argue that they watch only a handful of those. Our survey found that, when asked to rank their five "must have" channels, Pay TV consumers chose the four "free networks" (CBS, ABC, NBC, FOX) as the top slots. ESPN rounded out the top 5. This is rather astonishing, and adds further credence to the notion of cord cutting.  After all, if  four of the top five channels an individual watches are available for free (either online or over the air), why on earth would one pay upwards of $70/month for a subscription?  Force of habit?  Because the cable company told you to?  To avoid having to switch an “input” button on the remote control?

Not the End for Pay TV—But Maybe Pay TV As We Know It

To be clear, we are in no way predicting the imminent demise of pay TV.  There will always be a market for premium content, and that customers will continue to be receptive to paying for content relevant to them. Rather, we believe that service providers must rethink business models. Some have already begun to do this, through initiatives like TV Everywhere.  That, however, solves only the where part of the problem.  Next to tackle is the what. A la carte?

I was speaking on the panel at the OTT 'mashup' eventat Ogilvy's London Docklands headquarters last night, alongside Turner Broadcasting's Casey Harwood and Anthony Rose, CTO at the BBC's Canvas (now YouView) project, amongst others. As a first-time masher-up and intrigued at the possibilities for the format, the event turned out to be organised along relatively familiar panel debate lines. Casey and I began with introductory comments, and were followed by critiques from the other contributors. The session was then opened up to debate, including audience questions. All the time, running on a display behind us, was a Twitter feed of comments from participants in the twittersphere, as well, presumably, as a few of the 100 or so people who joined us in the traditional, physical fashion. The only problem was that the panelists had to turn away from the audience to see if any particularly fascinating Tweets had appeared, and if they ever did, it was noticeable that the physical audience's attention would be diverted to the ominous gap between the panelists and away from the speakers. The one recommendation I would make is that questions and comments from the virtual audience could have been added to the debate; it did rather feel at times as though we were being Tweeted at without right of reply. Nevertheless it was an interesting evening and I hope the audience found the debate valuable. my own contribution centered on a few relevant datapoints from our recent survey of UK TV and online TV viewers. In particular I referenced the fact that 13% of UK people are currently watching TV on the internet at least on a weekly basis. So we needed to bear in mind that the OTT phenomenon is still restricted to a relatively small proportion of the population, and most of that activity is taking place on the PC. The number of people accessing web TV on their TV set is of course even smaller: 6% of people are connecting a PC to a TV, and 4% now claim to use a dedicated internet TV device. Having said that, our work with early connected TV adopters within our Digital Home Observatory suggests that television behaviour can change rapidly once viewers have access to some of these emerging technologies. This segment is motivated by a desire for greater viewing flexibility and access to preferred content. They also still see weaknesses in current connected TV solutions, especially in the field of control devices and interfaces. The panel also touched on the issue of business models, and in response to the question of how things might look in three years I replied that the basic alternatives would not change greatly: television in the UK will still be funded by a combination of public service licence fees, advertising and customer payment of one sort or another. The mix may change slightly, and we may see greater variety in pay business models. But it’s important to remember that customers are very sensitive to their monthly bills. The impression is often given, especially by new entrants, that new payment models can somehow overcome consumer resistance to the size of the overall television bill. The reality is that 80% of UK customers check their bank statements every month, and a similar proportion prefer predictability in their monthly payments. 69% would agree to pay only for the shows they watch, but only if it reduced the overall monthly bill. All in all I agreed with Anthony Rose’s comment that too little emphasis in connected TV discussions has been put on live, scheduled television. The assumption seems to be that this traditional model will break down rapidly as various on-demand options become available, but this trend is likely to happen only slowly over a long period of time. Even for early adopters, scheduled broadcasting remains an important part of the overall mix. The overall message is one of increased fragmentation of delivery models and audiences. Client Reading: Profiling the Connected Media Consumer - UK

Cisco today unveiled its long-awaited consumer Telepresence product. A smaller and scaled-down version of the company’s enterprise-grade TelePresence system, “ūmi” (‘you-me’) comes with an HD camera, a console and a remote. The idea of the videophone is far from new. Children of the 60s and 70s may recall George Jetson getting chewed out by his boss, Mr. Spacely, over videochat. In fact, the technology, is older than that, and was conceptualized as early as the late 1800s. The German Bundespost offered (albeit short-lived) commercially-available service the1930’s. AT&T announced its Picturephone product at the 1964 World’s Fair, though the service never quite took off, reportedly maxing out at 500 subscribers nationwide.

This time it’s different…

What makes this time different? According to Cisco’s VP of Consumer Marketing, Ken Wirt, three things are different this time. The quality and ubiquity of HD displays, the increased average household bandwidth, and exponentially increasing processing power have converged to create a ‘perfect storm’ for telepresence.

With apologies to Elvis Costello

Writing about telepresence is like dancing about architecture

Or was that Frank Zappa? In any case, as with HD or 3D, trying to explain telepresence to someone who hasn’t seen it is akin to trying to explain the color blue to a blindfolded person. You kind of have to see it to understand it. I had a chance to test drive the product last week before the official product announcement, and must say that—even as a professional skeptic--I left the demo thoroughly impressed. The so-called “immersive” effect (allowing you to ‘see what others are feeling’ ) is quite noticeable, and is what distinguishes it from a garden-variety Skype video or web-based video chat program. There is near perfect synchronization between audio/video, and people appear life sized on the screen. Ken Wirt cited a study showing that 55% of all conversation is non-verbal. It’s no surprise that it is our body language, the nods and raised eyebrows, shaking heads, smiles and smirks, that distinguish a phone call from a ‘carbon-based’ face-to-face meeting.

The Uncomfortable Topic of Money

The price tag is steep, at $599 for the unit, plus a monthly fee of $24.99 for unlimited ūmi calls, video messaging and video storage. The system will be sold through Best Buy/Magnolia Home Theater stores, bestbuy.com and on the cisco website. The service requires a minimum of 3.5 Mbps to work in 1080p, though it can be optimized for use at lower speeds, as low as 1.5Mbps for 720p. This means that the service will largely be limited to those with cable broadband or FTTx. Cisco believes that 34% of US households have this type of upstream capability—which is in line with Strategy Analytics’ own estimates.

The Network Effect

Back in the early days, the phone company sold “telephone pairs,” with the understanding that the value of the network lies in the number of nodes. A telephone network with one phone is not terribly valuable. Nor is a telepresence unit if there’s nobody on the other end. Cisco has partially circumvented this problem by providing interoperability with Google video chat, though if you’re spending $600 on a unit, you probably want the “real thing.” The real value of telepresence will be realized when there is a robust network of equipped households. While family video-calling seems the most obvious use-case, its utility seems rather limited. How many times do we really want to videochat with Grandma each month? Unless and until the network reaches critical mass, the appeal and draw of video calling will be very limited. Rather than a consumer mass market play, the real opportunity might very well be in the Business to Consumer (B2C) space. If private industry can help subsidize and drive the technology more mainstream, it could hit the critical mass it needs. Cisco talked about a number of other potential applications, three sound like potential winners in driving telepresence forward. These include

Financial Services: A $600 upfront investment and $25/month is a drop in the bucket for a company trying to prove its value to high net worth clients. For the cost of a few steak dinners, a Financial Services company could equip a client’s living room and increase the frequency of “touch points.”

Health Care: While the chatter around Telemedicine never seems to cease, this is one application where it actually could make sense. An insurance company might find it financially beneficial to subsidize a unit for a patient requiring regular and routine examinations, or for medical compliance monitoring (“Did you take your pills Mrs. Smith?”)

Distance Learning: How about tapping into the multi-billion dollar distance learning market in the US.  Equip every “Phoenix” with a system? That’s what I call scale.

I want one… but not for $599 plus $24.99/month

Many who experience the technology firsthand will want one for their own living room. It’s cool. It works well, and the potential applications are only limited by the imagination. It’s light years ahead of pc-based chat. On the flipside, the price is high. Too high. And when you add on the 24.99/month fee, it starts to feel like another cable bill. Survey research conducted by Strategy Analytics in Q3’10 shows that 30% of Americans showed some interest in a service of this type. Importantly, though, 46% of those interested said they are often concerned about their ability to afford regular household bills, 45% said they worried about signing up to new fixed term contracts when buying new products and services.

Adoption Will be Slow But Steady

Cisco would certainly admit that the $599 price point is untenable for the long run, and as volumes slowly ramp up, we should expect to see price points come down. If Cisco is successful in getting private industry into the game, and a subsidy model takes hold, we could see adoption speed up. The other barrier standing in the way of rapid adoption is broadband. While today only one-third of households have the minimum required bandwidth to support the system, this will certainly increase going forward. We estimate that by 2015, over 60% of all US households will have at least 1.5 Mbps upstream capabilities. Stay tuned…we’ll be putting out a Telepresence report in the upcoming

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?

Many thanks to Jeff Baumgartner at Light Reading for reminding me of my post last September concerning ActiveVideo Networks and the company's suitability as a potential Cisco acquisition. I had also just noted that ActiveVideo is planning to exhibit on Cisco's stand at this year's IBC starting tomorrow. I'm sure the relationship is quite harmless at the moment, but who knows where things may lead? If you're at IBC, hurry to register for our free-to-attend 3DTV Analyst Forum. We’ll be presenting great insights from our 3DTV research, and Sky’s Brian Lenz, who has headed up the company’s 3D initiative, will be giving the audience his thoughts on our findings as well as an update on Sky’s 3D launch plans. Attendees are invited to register in advance by visiting www.strategyanalytics.com/ibc2010.html. Meet Our Analysts: 3DTV Analyst Forum at IBC 2010