Digital Consumer

As if to demonstrate that it was not resting on its laurels after Blu-ray’s defeat of HD-DVD, Sony yesterday also announced new investment in OLED technology. The company plans to spend 22 billion Yen ($200m), partly to buy out Toyota’s share of the manufacturing joint venture, and partly to ramp up production of OLED panels so that it can begin to offer larger screen displays from 2010.

Sony has been selling its 11″ OLED TV in Japan and the US, although the premium price of $2500 makes it little more than a statement of intent at this stage, and the company is still thought to be losing money on each product. Nevertheless OLED’s potential is exciting because it offers the most realistic long term competitor to LCD in the flat panel TV market. The theoretical benefits of OLED over LCD include lower power consumption, thinner displays, more realistic colour reproduction, wider viewing angle and faster response time. It is also hoped that they will eventually be cheaper to manufacture than LCDs.

But the relative scale all of these benefits over LCD will only diminish over time as LCD technology continues to improve. Ultra thin OLEDs are undoubtedly impressive, but LCD TVs less than 1″ thick will be dominating the market in a few years’ time just when OLEDs are beginning to challenge them. This fast moving escalator of price-performance ratios is what makes OLED investment so risky. Sony’s latest investment at least demonstrates its determination to lead the industry in the next generation of panel technologies, in contrast to its failure to predict the success of LCD a few years ago. But it is going to take a lot more than $200m to ensure Sony’s OLED leadership, especially when Samsung has similar ambitions.

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CES 2008 and Beyond: Can the Wow Factor Make a Comeback?
HD Discs: Blu-ray Wins Battle, Not War

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.

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High Definition TV and Video Devices: Global Market Forecast

Just an advance warning of a release we will be issuing next week on our latest set-top box research. Here is the gist of it:

Worldwide sales of digital TV set-top boxes broke through the 100m barrier for the first time in 2007, according to the latest research from Strategy Analytics’ Connected Home Devices service. The report, « Digital TV Set-Top Boxes: Global Market Forecast », found that sales reached 102.4 million units last year, an annual increase of 12%. IPTV’s market share rose to 5.9%, compared to 3.6% in 2006. Cable’s share also rose, to 36.2%, while satellite and terrestrial shares declined. For 2008 the report predicts a surge in demand for digital terrestrial set-top boxes, driven by the impending switch-off of analogue broadcasting in the US. By 2012 annual global sales of all digital TV set-top boxes will reach nearly 200 million units.

“We expect the Asia-Pacific region to overtake North America and Europe in 2008, accounting for a third of this year’s 129 million sales,” says Peter King, Director, Connected Home Devices. “Sales of digital terrestrial TV boxes in Europe have now plateaued as consumers begin to transition to integrated digital TV sets, but this pattern is unlikely to prevent overall market growth across all platforms.”

“The set-top box remains the key gateway to advanced digital television services around the world,” says David Mercer, Principal Analyst. “Added value services such as high definition TV, digital video recording and Internet video are all set to drive further growth in this strategically important sector.”

The report provides Strategy Analytics’ latest global market forecast for digital TV set-top boxes, based on analysis of more than 200 digital television platforms and operators around the world. It including 5-year demand forecasts for 22 countries across the principal geographies, and segmentation by the major access platforms DTTV, IPTV, satellite and cable.

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Digital TV Set-Top Boxes: Global Market Forecast

ProSiebenSat1, one of Germany’s leading commercial television broadcasters, will close its two free-to-air HDTV channels (ProSieben and Sat1) from tomorrow morning, 15th February. Instead the company will focus on increasing the availability of its 16:9 SD broadcasts. This shows, if nothing else, that the German market has some way to go to catch up with other countries, where 16:9 has been established for some years, and that HD may be a step too far, too soon.

ProSiebenSat1 was one of the first broadcasters in Europe to take the plunge with free-to-air HDTV. Germany’s TV market is characterised by the continued dominance of free-to-air broadcasting and the weakness of pay TV, relative to other European countries at least, and is often seen as being fundamentally different to other markets. So FTA HDTV may have seemed a natural development in Germany while other countries concentrate on pay HDTV services.

But ProSiebenSat1’s decision suggests that the laws of economics apply in German broadcasting as much as anywhere else. The fact is that in the early days of any new platform the audience is going to be tiny. HDTV requires users to buy or rent new set-top boxes, so a significant audience will only begin to emerge after some time. Any broadcaster believing that an HD channel can survive on advertising revenues alone in the early days is relying on wishful thinking rather than a sound business plan.

Strategy Analytics’ European HDTV scenario has always called for initial market leadership from the pay TV providers to establish the technology platform in the first few years, as indeed Sky is doing in the UK, using subscription payments as the primary business model. Public broadcasters will also find it difficult to participate initially because of lack of funding, although the BBC and others do have limited initiatives already in place. Wider availability of FTA channels will have to wait until the audience capable of receiving HD signals has expanded significantly from today’s 1% of European homes.

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Europe’s High Definition Homes: High Definition TV and Video Devices Forecast

The uncertainties of digital terrestrial broadcasting technologies have been highlighted on both sides of the Atlantic in the last couple of days. Survey house Centris, as reported in the Boston Globe, suggests that millions of US homes will get fewer or no off-air TV signals once digital switchover is complete next February. The study (I can’t cite it directly as it appears to be unpublished and even unidentified on the company’s website) claims to have investigated signal characteristics in many US cities and estimated reception probabilities accordingly. The BG article claims that at least 50% of viewers using set-top aerials will fail to get a digital signal. Others will have problems with trees and walls.

There is nothing new in any of this. The problems with the ATSC system have been well rehearsed over many years. It’s not that it doesn’t work. It is just that it is impossible to know when it will or won’t work. And that is a killer when it comes to selling digital TVs, converter boxes and new digital channels.

Is a similar issue now spelling the end for DAB, the digital radio standard used in the UK and some other countries? Yesterday GCap, one of the UK’s leading commercial radio broadcasters, announced that it will close two of its leading DAB stations, TheJazz and Planet Rock (the latter ironically described as “award-winning” in the CEO’s website introduction), and sell its 63% stake in Digital One, the DAB promotional group, to Arqiva, the broadcast infrastructure provider. According to GCap DAB “cannot be an economically viable platform” with its current cost structure.

As I noted previously, DAB has had some success in the UK: it now accounts for 10% of all radio listening. But the network rollout has been frustratingly slow and patchy, and while “coverage” is claimed at 85% of the population, residents outside major towns and cities still struggle to get a usable service. The problem is similar to that in the US DTV market, in that users in marginal areas are encouraged to install a roof-top antenna to enable reception. And a professional installation multiplies the £40 invested in the DAB receiver several times over.

I’m sure DAB is a wonderful thing if you can get it (although there have been complaints about reduced audio quality). My neighbour 10 yards across the road is pleased with her set. But I had to return mine to the retailer because it wouldn’t receive a signal. That’s how uncertain the system is, and it’s not good enough for a service that aims eventually to replace analogue broadcasting through a retail, open standards model. The many millions of investment needed to correct those problems are one of the factors GCap will have looked at, and why they have the passed the buck back to the owners of the broadcast infrastructure.

Likewise in the US, as the DTV convertors leave the retailers’ shelves and reach customers’ homes, the real test will be when they start getting returned as unusable, or simply gather dust. Some users will be lucky: many others will simply give up and switch to cable or satellite, or indeed stream or download from the Internet.

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Broadcast Under Threat: Over-The-Top Video Distribution