Digital Consumer

A quick follow-up to my previous comments on 1080p broadcasting and its potential challenge to the Blu-ray Disc platform. I asked Disney’s EVP Gordon Ho, who leads the company’s BD initiative, how Disney could square the company’s claim that BD offered superior quality to any other platform when at the same time its partners, Dish and DirecTV, were marketing their new services as offering equivalent quality to BD. Ho was clearly anxious not to create a political incident with two of Disney’s major partners, and replied that the claims of BD quality by satellite providers were “a little misleading”. “1080p and 1080p are not the same,” he suggested, and that BD offers more. “In the end it’s all about educating the consumers.”

In a public forum we would expect the reaction to be toned down somewhat, and these comments are relatively mild compared to the BDA’s assertion that satellite companies are being “irresponsible”. But Disney and the BDA are still some way short on the specifics of exactly why satellite and other service providers are not “technically capable” of matching BD quality. The BDA’s Frank Simonis noted that the satellite providers were using 15 Mbps for their 1080p programming, compared to BD’s potential of 48 Mbps (for video and audio). But bandwidth actually used on BD titles has been more in the region of 20Mbps, so there doesn’t seem to be a huge difference in reality.

The key point about all this is that, regardless of the technical specifics, many consumers are confused about HD in general, and there is a lot of work to be done to persuade them of the relative merits of different HD content platforms. The studios recognise this, and Warner in particular is working with retailers to increase in-store comparison demonstrations of BD and DVD. But the BDA collectively also needs to be careful that the Blu-ray label is not misused. There may be no near term commercial threat to BD from digital TV providers, but if the Blu-ray designation is used inappropriately it will only help to increase consumer confusion even further.

Client Reading: Blu-ray Devices: Forecasting Sales and Ownership

It’s not the headline the organisers of this year’s IFA want to see, but the biggest news from the opening press conference today was that demand for consumer electronics in Europe is likely to fall by 2.4% this year to €64.3bn. Perhaps that’s not surprising in the context of the global credit crunch and a constant stream of gloomy economic news, but it will be the first time European gadget sales have gone into reverse for some years, and follows an increase of more than 7% in 2007.

The fact that the German domestic market is bucking the wider European trend provides a glimmer of light in what is certainly a tough environment for the world’s major brands, all of whom will have massive displays of their latest technologies here in Berlin over the next few days. IFA (or Internationale Funkausstellung if you prefer), while its claims to be a truly international convention generally stand up to scrutiny, is also very firmly a German event for German retailers as well as the (German) general public. The 3.8% growth in German CE sales expected for 2008 will give heart to manufacturers who have been suffering from the sharp downturn in other European markets, notably the UK, where sales so far this year are down by 11%.

One of the factors attributed to the stark contrast between the UK and German markets was that the UK’s national football teams, England, Scotland, Wales and Northern Ireland, all failed to qualify for this year’s European football finals in Austria and Switzerland, in contrast to Germany, which not only qualified but reached the Final. I’ve always felt the importance of major sports events in driving consumer electronics sales in particular countries has been overplayed somewhat. It can be difficult to divorce this particular factor from the economic environment in general and the natural maturity cycles of different products. And while sales of big screen TVs may be brought forward for the sake of a sporting event, this may lead to a downturn during the rest of the year.

So far this year Germany and the UK’s respective sales performance seems to be proving me wrong , but let’s wait and see what the final year’s results look like. Perhaps the UK’s success at the Beijing Olympics will have led to a second half revival in UK flat panel TV and set-top box sales to even things up.

Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

One of the main objectives of Blu-ray Disc developers was to set a benchmark in video quality that would provide sufficient encouragement for DVD owners to upgrade, as well as providing a challenge that few if any alternative video distribution platforms could hope to match, at least in the foreseeable future. One benchmark that BD sets is known as “Full HD” or 1080p and it provides the best possible video quality commercially available to consumers today. (Further enhancements are in the works, notably the Japanese Super Hi-Vision 4000 line system, but that’s another story for another day and will not see commercial availability for some years.)

As the format was being developed in the early part of this decade, BD proponents were probably hoping that the blue laser disc would have the 1080p market all to itself for much of its life. It had been assumed that both broadcasting and internet delivery platforms would struggle to accommodate the bandwidth and bit rates required to delivery equivalent video quality.

Those assumptions are now being questioned by recent announcements from broadcasting service providers on both sides of the Atlantic. French cable operator Numericable announced at the end of June that it would begin offering “Native HD” movies on its VOD service in July. Shortly afterwards, both US DBS providers, DirecTV and Dish Network, made announcements along similar lines. While DirecTV was first with the news, Dish is claiming bragging rights for the first 1080p movie, Warner Bros’ “I Am Legend”, which was available beginning August 1st. Dish claims this was an industry first, which may be correct as far as the US is concerned, but Numericable would appear to have beaten them to the punch in global terms.

Apart from business model issues (like the fact that satellite providers can’t offer true VOD), there is the key question of video quality. Both Dish and DirecTV reference Blu-ray Disc in their publicity material. The quotations are as follows:

• “Starting August 1, Warner Bros. Pictures’ blockbuster “I Am Legend” starring Will Smith will be available in 1080p resolution — same as Blu-ray(R) Disc quality — on DISH Network’s VOD service, DISH On Demand.”
• “DIRECTV will begin offering movies in 1080p, the highest resolution format available for HD video enthusiasts and the same format used by Blu-Ray HD DVDs”

These claims have clearly struck a sensitive nerve within the Blu-ray community, which, given their strategy as outlined above, is perhaps not surprising. Today the BDA has given me the following statement:

“A number of companies have recently launched advertising campaigns claiming their products deliver high definition picture and sound “equal” to that delivered by Blu-ray Disc. These comparisons are irresponsible and are misleading to consumers. Up conversion and satellite broadcast cannot provide a true Blu-ray high definition experience, as neither is technically capable of producing the quality delivered by Blu-ray players and Blu-ray discs. To that end, the Blu-ray Disc Association is exploring these claims further and will take appropriate action, as necessary, to prevent consumers seeking the ultimate in high-definition home entertainment from being misled.”

I look forward to hearing the results of the BDA’s exploration of these claims. It has always been a challenge to get industry consensus on the relative technical merits of one video system over another. Video and broadcast engineers will tie themselves in knots with competing claim and counterclaim about the significance or otherwise of numbers of vertical and horizontal lines, interlaced versus progressive scan, pixel counts, black levels, bandwidth, the merits of film and video cameras, scanning rates and any number of other technical criteria which may affect what the viewer ultimately sees on the TV screen.

As far as misleading consumers is concerned, I agree wholeheartedly that while there may be no deliberate misleading going on, consumers are certainly confused in all sorts of ways about HD in general. People (on both sides of the Atlantic) have been buying “HDTVs” or “HD-Ready” TVs for a few years now, and many of those viewers will struggle to say exactly whether or not they are actually watching HDTV content at any given time. I have pointed out previously that programmes on so-called “HD channels” on Sky’s platform are often not true HD content. If viewers pay for HD channels and are watching SD content, how can they be blamed for not understanding?

Instinctively I would say that the BDA is right – I don’t believe that DirecTV or Dish will actually be offering programming at the same level of quality of BD. But the technical arguments to prove the claim that they are not “technically capable” of doing so could be very difficult to prove one way or the other.

In the end, these new Full HD initiatives are more of a statement of competitiveness against rival service providers than against BD itself. As has often been the case in the past, the satellite providers in the US are battling against cable companies, and now IPTV providers, to set new benchmarks in quality and customer experience. The 1080p story is just another phase in that competitive battle, but it is unlikely to seriously affect Blu-ray’s potential.

Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

Microsoft introduced its new Photosynth service yesterday at an event in central London. Photosynth was developed by Seadragon and acquired by Microsoft two years ago. It has been developed under the wings of the company’s Live Labs group and is now available at www.photosynth.com in its 1.0 version. I say “available” advisedly, because it wasn’t accessible from Microsoft’s own demonstration stand because of the site being “overwhelmed”. This morning, however, things seem to have improved.

Photosynth creates panoramic or 3D representations from still photos. The technology’s clever part involves stitching or “synthing” different photos of the same object so that they merge seamlessly into a continuous whole, or at least that’s the theory. The examples given are of famous landmarks such as Stonehenge. Using a couple of hundred photos taken from a wide range of different angles, the software creates a visual quasi-3D representation of the monument, filling in the gaps between adjacent photos, and allowing the user to move around, choosing his own angle and zooming in at will.

Photosynth is an online service. A software application resides on the user’s PC but the images are stored on the web. At the moment Microsoft is presenting Photosynth as a consumer service and will offer it within the MSN suite of services. The company suggested to me that it had no specific plans for revenues or a business model behind Photosynth – it is a free download and Microsoft hopes to encourage widespread usage. Eventually however it seems certain that Microsoft will develop commercial business models and revenue streams. 3D modelling should to appeal to many online retailers, to take just one example.

The technology is certainly fascinating and I’m sure there will be photography enthusiasts out there who will explore its potential. For average users however I’m not so sure this is something that will catch on quickly. Digital photography has been successful because it simplifies what used to be a hit-and-miss affair and makes sharing photos straightforward. Active involvement in Photosynth will necessitate a significant investment of user time, as well as access to a decent broadband upload connection – if an individual user is serious about creating a good synth of a building or location, this could require 100 or more high quality digital photos, and that will involve no small amount of bandwidth.

But like so many other emerging applications, we probably haven’t even begun to see what Photosynth will become over time. That will ultimately hinge on the creativity of end users, and given past experience that is likely to take the service in directions that can’t even be imagined today.

Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

I thought I’d share a personal angle on an industry issue that’s grabbing the home PC sector’s attention right now. It was sparked by a meeting yesterday with Zoostorm, a UK PC manufacturer, which is launching its range of children’s laptops under the Fizzbook brand. Based on Intel’s Atom processor, running Windows, and with choices of 7″ or 8.9″ displays, Fizzbooks will be available in UK stores from next month at £199 and £269 price points. The company expects to sell 70,000 units in the pre-Christmas period.

To quote Zoostorm’s Sion Roberts: “The Fizzbook is the type of product parents can feel good about buying and children actually want. The educational and office software with the Fizzbook make it a great aid to learning and development, but the excellent general computing capabilities make it perfect for surfing the internet, playing games or watching movies.”

As the parent of a child slap bang in the middle of Zoostorm’s target 6-14 market, I beg to differ. Fizzbooks’ snazzy design may appeal to some kids on the surface, and I’m sure Zoostorm will sell plenty of units to parents and indeed grandparents who like to feel they haven’t wasted their money on frivolous gadgets. My fear is that these good intentions may turn to disappointment on all sides once their kids realise they have been given what is basically half a machine.

Based on my experience of my own and many other children, the one thing kids want to do with the family PC is play games. And not just any old Flash-based browser nonsense either: they want the latest and greatest games that arrive on DVDs (Fizzbooks have no optical drive), need the latest processors and require GBs of hard disk drive storage before they even get going. I’m thinking in particular of EA’s The Sims 2, whose arrival in my household three years ago necessitated the purchase of an expensive new laptop with a dedicated graphics card that copes, just about, with the demands of the latest 3D games.

I’m currently in the market for a “kids laptop”, but I still don’t quite know what one of those is. PC World, the UK’s largest high street computer retailer, offers its own label range of Kids Laptops. They have a nice range of colours and designs, which I know will appeal to its intended audience. But in response to my email (albeit five days later), I received the following information: “Having searched on our system, I can confirm that Kids laptops will support T&L applications but I would not advise you to use the laptop for games.”

T&L refers to “Transform and Lighting”, which some graphics cards are compatible with and which enables the more sophisticated 3D environments to be rendered successfully. Sims 2 is one game that demands this capability, and it is very difficult to discover which laptops, never mind “kids laptops”, have it. From PC World’s response, I assume they think the CPU and other PC components in their kids laptops are not up to the job. I’ll break the news to my daughter gently…

The Fizzbook and its rivals aimed at the kids market are repeating a mistake so often made by technology companies aiming devices at children: they regular products aren’t suited to kids, for whatever reason. In my experience, this is misguided. In many cases it is children who are much happier coping with the complexity of PCs than their parents, and, in the case of the latest games, driving demand for the latest processors and graphics cards.

Fizzbooks are nicely designed and rugged, and will be bought because of their attractive price points. They may suit the youngest age groups particularly well. But older kids will soon tire of their limitations and yearn for time on “Dad’s laptop” so that they can get on with the real job of shooting aliens or building virtual worlds. Either that or their parents will save up an extra £100 or so and buy them a proper laptop in the first place.

If you want better insight than I can ever give on the “real” PC and mobile computing space, see the excellent enterprise mobility blog run by my colleague, Philippe Winthrop.

Visit us at IBC: Web TV and Virtual Worlds Analyst Breakfast

Client Reading:
Online Games: Global Market Forecast

Few Wii users will have heard of Hillcrest Labs, except perhaps those who also read this blog. Back in January I described Hillcrest’s TV guide and “Loop” remote control technology in relation to an online VOD store.

Funnily enough I referenced the Wii in that item, suggesting that Hillcrest was encouraged by Nintento’s success as it justified the general concept of 3D air controllers. Looking back I suppose I could have read into those comments that Hillcrest were taking rather a closer interest in Nintendo than was immediately obvious at the time.

Yesterday Hillcrest filed a claim with the U.S. International Trade Commission based in Washington, D. C., that Nintendo with its Wii system has infringed Hillcrest’s U.S. Patent Nos. 7,158,118, 7,262,760, and 7,414,611. These refer to a navigation interface display system that graphically organizes content for display on a television.

I’m no lawyer or expert on patents, so I’m happy to let the US courts work this one out. I would only point out that such cases tend to go on for many months if not years, and it would be unexpected for a ban on Wii system imports to be granted. I would also surmise that Hillcrest has been attempting to win license fees from Nintendo without success prior to launching this action.

Nevertheless investors have taken note of the potential seriousness of the case: Nintendo shares fell 3.6% yesterday. It’s not unusual for large successful companies to be pursued for all manner of claims by smaller firms; in fact it seems to be almost routine. Nintendo itself has been involved in a similar case over the vibration technology deployed in its controllers, and has been found to infringe patents owned by Anascape. The injunction brought against Nintendo in that case (first brought in July 2006) is still on hold pending Nintendo’s appeal to the Federal Circuit. The Wii’s success seems to have given Nintendo another headache it would like rather not have to deal with, and it may be a year or two before it shakes it off.

Client Reading:
Digital Media Devices Global Market Report

Just a heads-up that we’ll be giving two analyst presentations at this year’s IBC in September; one on our research on connected TV devices, and another presenting findings from our pioneering work on Virtual Worlds. Registration details are below.

Bridging the Web-TV Chasm: How Connected Devices will Bring Web TV from the PC to the Big Screen

Our breakfast presentation will explore the emergence of Connected Web TV Devices and their impact on traditional broadcast business models. Our leading analysts present new user survey findings on web TV usage, scale the future adoption of Internet devices such as set-top boxes, connected TVs and mobile internet devices, discuss the conflicts and partnerships between legacy and emerging players, and size the revenue opportunity for web television and video services. Please join us for a tour of the rapidly expanding world of web TV, insights on why it all matters, and actionable recommendations for players facing unprecedented challenges and opportunities.

Date: Saturday 13th September, 2008
Location: Holiday Inn, “Minnesota” & “Montana” Rooms, De Boelelaan 2, 1083 HJ Amsterdam, The Netherlands
Registration & Breakfast: 08:00
Session: 08:30-09:30

Searching for Your Missing Viewers? Find Them in Virtual Worlds!

Our lunchtime presentation addresses a challenging trend for the content and entertainment industries. Every month, an estimated 1.5 billion viewer hours disappear from television screens and emerge in a growing variety of virtual worlds. From Habbo Hotel and Second Life to World of Warcraft, this interactive, immersive medium is seducing viewers around the world and is projected to grow by an order of magnitude in the next decade. With a particular impact on kids, tweens, teens, and young adults, virtual worlds represent a sea change in the nature of entertainment. Come and hear us discuss how this activity is developing, who will use it, and what broadcasters, content providers, advertisers and other players should do about it.

Date: Saturday 13th September, 2008
Location: Holiday Inn, “Minnesota” & “Montana” Rooms, De Boelelaan 2, 1083 HJ Amsterdam, The Netherlands
Registration & Sandwich Lunch: 12:00
Session: 12:30-13:30

Both presentations are free of charge but as we have limited space we ask you to register in advance by going to our website at: www.strategyanalytics.com/IBC2008.html