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

I 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

The depth of the recession in the US consumer electronics market was highlighted today by CEA data which confirmed a decline in dollar revenues in 2009 of 12%. The outlook for 2010 improves but only in the sense that the rate of decline falls to 3%. In the meantime we're hearing news of new 3D TV channels already, with both ESPN and Discovery throwing their hats into the ring. This is great, if expected, news for the many 3D-ready TVs we expect to see over the next few days. At this evening's CES Unveiled event Sensio were showing their passive 3DTV, even though the company today announced its partnership with Visio to launch an active 3DTV later this year. Mitsubishi was also showing its laser 3DTV with the adaptor which will be necessary for compatibility with Blu-ray 3D players when they are lauinched. Logitech was showing its new Lapdesk N700, a laptop “cushion” with in-built speakers designed for enhanced laptop usage in the comfort of the armchair. The peripheral retails at $89.99 and also features an in-built cooling fan to prevent over-hearing, a familiar problem for those many TV viewers who now sit with a laptop on their knees. Logitech have thoughtfully added a grip to help keep the laptop steady, but unfortunately in my case it failed to prevent the Macpro falling to the floor. No damage done, luckily, but perhaps evidence of a need for further improvement in design. Logitech was also demonstrating the fruits of its recently closed acquisition of Lifesize Communications, a videoconferencing specialist. On display was its Passport set-top videoconferencing device. This retails at $2500 and allows anyone with a minimum 2-way 1Mbps broadband connection to communicate using HD video (720p). The service downscales to lower resolutions for slower bandwidth connections. Logitech claims that this device is a third of the price of any other similar product on the market. That may be true today but is unlikely to remain so for much longer. Videoconferencing and telepresence are shaping up to be one of the emerging trends of this CES and we will hear a lot more over the next few days, in addition to the Skype/Panasonic/LG announcement today. Yet another OTT video set-top box was being demonstrated by Syabas with its Popbox product. This grew out of the company’s Popcorn Hour device. The Popbox has been designed to be especially user-friendly, and the user interface does appear attractive and accessible. The service integrates currently 20 “content application channels”, which means things like Netflix, and is working with 200 application developers. It will launch in March 2010 and retail at $129, plus $20 for the optional WiFi module. The Popbox is 1080p-capable, although the only 1080p content was demonstration material. If Syabas manages to sign 1080p deals with content providers it will certainly be a step ahead of most competitors. ProVision CEO Steve Cliffe was confident enough in his company’s wireless HD technology to carry a laptop across the show floor while it streamed 1080i HD content, and there was no loss or deterioration in signal. This UK firm was founded by professors at Bristol University, and uses proprietary error correction and RF management techniques to improve HD video streaming over 802.11n. The company is talking to set-top box and TV manufacturers looking to support HD distribution to multiple home devices. Another UK firm, Imagination Technologies, was launching its Pure digital radio products for the US market. Pure is the leader in the UK but virtually unknown overseas. It will, rightly, tread carefully as it enters the notoriously challenging US market, and will obviously (since the standard is not used) drop DAB from its US product line-up, instead concentrating purely (sorry) on internet radio. Its Sensia product is the highlight of the range and features a full-colour touch screen LCD display as well as additional interactive capabilities like Twitter and Facebook. Pure confirmed to us that video-capable devices are a natural step forward and can be expected in the next year or so. Client Reading: HDTV: Standards Muddle Clouds Outlook For Wireless Displays

The tone of this year's Supercomm is certainly more political than usual, with net neutrality at the center. Otherwise benign speeches and presentations are punctuated with "keep government out of broadband" taglines. All of this is very à propos, of course, as the FCC today is expected to vote on a proposal giving the green light to rules formulation on net neutrality--something the Telcos view as an existential threat. In yesterday's keynote, Verizon CEO Ivan Seidenberg ripped the idea of net neutrality as "a mistake, pure and simple--an analog idea in a digital universe," and blasted the "Silicon Valley digital elites" (oh God, using "elite" perjoratively is sooo 2008!). Net neutrality threatens to stifle progress, he suggested, noting that "if we can't earn a return on the investments we make in broadband capaicty, our progress toward a connected world will be delayed, if not halted altogether." In what some have referred to as "astroturfing," i.e., creating an artificial grass roots movement, Seidenberg suggested that net neutrality could create a public safety hazard, saying "If we can't differentiate betewen packets, we can't prioritize emergency communications for first responders, telesurgery or heart-monitor readings for digital medicine, or videoconferencing over spam for telecommuters." While it may tug at the heartstrings, the argument is a bit of a red herring. Nothing in the net neutrality discussions occuring now would prevent lawful and reasonable network management. Today's decision should come as no surprise to anyone; the US policy on net neutrality was effectively made last November with the election of a new administration. Twitter: twitter.com/DavidMercer_SA Client Reading: US IPTV Market Sizing: 15.5 Million Subscribers by 2013

I just came off a call with Bob McIntyre, CTO of Cisco’s Service Provider Video Technology Group (formerly Scientific Atlanta). Bob was introducing Cisco’s approach to media networks (medianets) for cable providers. What disturbed me was McIntyre’s reference to the BBC’s iPlayer, as implemented on Virgin Media’s UK cable network, as an example of successful hybrid network DVR/VOD solutions. Not that the iPlayer has not been successful, which of course it has. But McIntyre seems to have misunderstood some of the fundamental dynamics of media business models in the UK market, because he suggested that the BBC “gets the benefit of advertising” by making seven days of its programmes available on demand. This is clearly some way off the mark: within the UK, the BBC is not permitted to run advertising alongside its TV programmes. Which begs the question: what actually is the answer to the question McIntyre was trying to address, namely, what is the motivation for programme owners and broadcasters to make their content available on demand? The answer, in the BBC’s case, is that it is obliged to make its programmes available across multiple platforms and multiple models, because of its responsibilities as the UK’s leading public service broadcaster. It has no commercial interest in doing this, beyond increasing eyeballs, but that doesn’t directly affect its core revenue base, the television licence fee, which is mandated by the UK government. With all respect to the great technology firms, such as Scientific Atlanta, which have helped to create the cable industry, it never ceases to amaze me how the economics of broadcasting in the UK and Europe are misunderstood by US observers. They frequently cite the BBC’s activities of evidence of market success. Please, please, please remember: the BBC does lots of wonderful things, but many would not survive in a purely commercial market environment. (But I still think iPlayer is fantastic.) Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Predictions for 2009

Cisco today announced its intention today to acquire Pure Digital Technologies, the makers of Flip Video camcorders, for more than $600m. Pure has sold more than two million Flip devices since their launch. They had sold a million nearly a year ago so that gives some idea of the run rate. Flip launched in Europe last year, but we get the feeling sales have not taken off as much as in the US. There has been much hoopla around the fact that Flip has become a leading “camcorder” brand in no time. But in reality the company has created a new category distinct from the tape, disc or HDD-based devices that have traditionally dominated. The main market driver historically has been to offer the best possible video quality, and the best consumer camcorders now come pretty close to professional quality video capture. Pure Digital took another approach – it wanted to simplify the capture and sharing of user-generated video for the net generation, and its portability, fast boot-up, one-button recording, simple USB connection and automatic loading PC software were hits with people who would normally baulk at the complexity of traditional camcorder devices. I’ve been using a Flip device for the past nine months, and there is no question it is an easier decision to carry one of these than my albeit excellent Panasonic DVC device, as long as I’m not expecting to create high quality video. In fact, it’s been successfully used by children with virtually no training, as well as by technophobe adults of my acquaintance. Cisco’s Chris Dobrec told us the background to the deal: he was at a daughter’s school sports event and saw many parents capturing the action on their Flip devices. They seemed so cool he suggested Cisco buy the company. Observers are already questioning the $600m valuation, and understandably if annual sales of a million or so devices at $150 are the benchmark. But Cisco is more interested in the device usability and software sharing capabilities that Pure has developed, as well as the fact that Pure takes Cisco further into the video market, which is a strategic objective. We can expect to see those capabilities to be improved on and integrated into Cisco’s emerging consumer device and software portfolio, with its Media Hub at the centre. While we expect Cisco also to add improved connectivity, such as WiFi, to the devices, the wider strategic question is the size of the market opportunity for personal, single-function devices such as digital still cameras and camcorders, when mobile phones are increasingly sophisticated in those applications. How many different devices can we expect users to carry? For now, Pure has unique benefits for certain segments: other vendors are sure to match it before long. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Predictions for 2009

A decade ago, Korea led the world in rolling out first generation broadband networks. By the early years of this decade more than 80% of homes used broadband services, and today access speeds to households in the major cities are typically 100Mbps. As the US and European countries debate government policy towards upgraded broadband networks, Korea has apparently set a new benchmark that others will struggle to match. The Korea Communications Commission announced this week that it would recommend investment of $24.6bn to enable access speeds to rise to 1Gbps (1000Mbps) in major cities. Smaller cities will have speeds of 50M-100Mbps. The KCC announcement puts into context Lord Carter’s recent “Digital Britain” interim report, which recommends that the UK should adopt a policy that guarantees “up to” (my banned phrase) 2Mbps to every home in Britain. This may be reassuring for remote Scottish hamlets, but is hardly a vote of confidence for the millions of urban households struggling along with under 8Mbps today. My colleague in Korea suggests that the recent KCC announcement is propaganda rather than a major change in government policy, since the backbone in Korea is already capable of supporting 1Gbps fibre to the home services. “There might be some investments on the Edge and some WDM but the major change will be the modem replacements and traffic management.” But even if we are sceptical about the politics, there can be no denying the intention of the Korean government to make sure its people and businesses are support by the most advanced communications networks. The broadband debate again raises the question of the demand for very high access speeds and the objectives of broadband policy makers. The example of Korea suggests that countries could get drawn into a game of broadband leapfrog to win kudos and political brownie points. So what if Koreans can get 1Gbps? What could anyone possibly want to do with that sort of data rate? As many in the US and UK have argued, 2Mbps should be good enough for most things. The problem with these arguments is that there is no way of proving today what applications could emerge if such networks were built. There is no point in seeing broadband purely in terms of today’s applications, which are still largely built around web browsing and low quality streamed video. Sooner or later video will move not just to today’s high definition (720p) but to 1080p and then to Ultra HDTV and beyond. And as Cisco is always telling us, telepresence as a consumer application is going to bring demand for high capacity two-way networks sooner or later. My own view is that there is no question that people will find ways to use bandwidth, however much they are given. Creativity has no limits. But that doesn’t necessarily mean there is economic justification in building new networks, or that new applications will make money. In the end, network investments depend on partnership between government and business, and countries must decide for themselves where the right balance lies. Twitter: twitter.com/dmercer15 Client Reading: Sputnik Moment: The Call for a National Broadband Policy

As Toshiba considers giving the last rites to the HD-DVD format, the last major objector is likely to be Microsoft. As Strategy Analytics has noted in its research many times, Microsoft's strategic objection to Blu-ray Disc stems from its use of Sun's Java technology as the basis for its interactive applications. There is nothing inherent in the disc format itself that would prevent Microsoft offering a BD drive, for example, as an add-on to the Xbox 360. Likewise, BD drives are available for Windows XP and Vista PCs, although support for the BD format is not native to either OS: users must install a third-party application such as Cyberlink's PowerDVD Ultra in order to watch BD movies. Significantly perhaps, Microsoft also never included native support for HD-DVD in its Media Center platforms. Toshiba would be unlikely to withdraw from HD-DVD completely without Microsoft's approval unless it wants to risk upsetting a key strategic partner. Microsoft's decision will hinge on three key questions: - Does it need to support a high definition disc format at all? - Could HD-DVD still survive purely as a PC format? - Could Microsoft realistically support BD without supporting Java? There are doubtless many Microsofters who believe the disc content business model is dying anyway, given the success of its Xbox Live HD video download service and the explosion in web-based HD content. Realistically, however, it will be a few years yet before broadband and the internet infrastructure can support HD streaming and downloading on an equivalent global scale to a disc platform. We have previously argued that there is no reason HD-DVD could not continue as a PC format, even as it was always bound to fail in set-tops. The dynamics of the PC industry mean that dual-format drives could become cost-effective relatively quickly if there was sufficient support from manufacturers. But it seems inevitable now, given the tidal wave of support for BD, that HD-DVD will lose support from any remaining hangers-on, so there seems little need even for dual formats in PCs. So can Microsoft ever live with Java? Our conversations with the company suggest a resounding No. So if BD drives are going to appear for the Xbox 360, as some rumours suggest, they will either not include Java, or will be developed by third parties. Either that, or a remarkable declaration of peace is about to break out between two old IT enemies. One way or another, Microsoft is HD-DVD's last hope for survival. Client Reading: High Definition TV and Video Devices: Global Market Forecast

Italy's Telecommunications minister, Paolo Gentiloni, has announced that the country's analogue switch-off date will now be 2012. This compares to the current official plan to complete the digital transition by next year, which was always highly improbable. Back in 2000 we wrote: "Italy continues to bemuse outsiders. Decision-making is still geared towards satisfying ever-changing political priorities, rather than developing coherent long-term strategies. ...There has even been a suggestion (by the Communications Minister) that analogue switch-off could occur as early as 2003. To describe such ideas as pure fantasy would be polite." In fact, in 2000 the official "switch-off" date was announced as 2006, which remained the objective until 2006 loomed too close for comfort, and was then revised to 2008. So Italy has an impressive track record of tearing up its old digital TV plans; now realism finally appears to have taken hold. The 2012 objective should be realistic, assuming the proposal for mandated DTT tuners is formally adopted, although there is still a long way to go - half of Italian households still rely solely on analogue terrestrial TV signals. As we predicted, France's new DTT strategy has already had an impact on the rest of Europe. We will watch the details of Italy's transition plan with interest.

One of the perennial questions we get asked is, what will be the next TV display technology? We have been predicting the dominance of LCD for at least the last 10 years, but until recently plasma was giving it a reasonable run for its money. As I mentioned in February, the only remaining LCD/plasma battleground is 50-60", and the plasma supporters are the ones under the most pressure. The industry had been expecting another large screen technology to enter the fray. Surface-conduction electron-emitter display (SED) technology was a joint venture of Toshiba and Canon until Toshiba pulled out in January over a dispute with Nano-Proprietary, owners of field emission display technology. At the time Canon claimed it still planned to begin pilot production of large (55") in June. It has now postponed those plans indefinitely, claiming that "prices of flat panels are declining more rapidly than expected". Where have we heard that before? Yes, Circuit City blaming plummeting TV prices for disappointing results back in December. Well, whatever the specific price projections Canon was working from, they would have had to be pure fantasy to believe that SED could be mass manufactured from a standing start to compete effectively with the millions of LCD TVs now be churned out across Asia. Don't get me wrong - SED was an impressive technology. We saw it demonstrated at CES 2006 and there was no question, if they had managed to get it off the ground it would have rustled a few competitors' feathers. But that's the problem with all so-called ground breaking new display technologies. Even if they offer radical performance improvements, their business potential and competitiveness has to be modelled on the basis of the market environment in five years' time, not today's. OLEDs are looking interesting in smaller sizes, but my bet is that LCD will remain dominant for a good few years to come.