Digital Home Convergenceoverviewas Technology And Entertainment example essay topic

Digital Home ConvergenceOverviewAs technology and entertainment converge inside the home, major players in various industries are taking different strategies in planning for the future. The concept of the "digital home" will likely take one of two forms: a closed wired entertainment network (PVRs, On Demand) or an open wireless data network (web, email, VOIP, IPTV). The closed model is already being offered in many homes across the country, but as technology advances, the open model will become the standard. It is important to understand how both technology and entertainment are companies are to control the "digital home". Based on research in this report, it appears that four things are likely to occur. First, convergence of technology will create the need for standards in the digital home network.

Much in the way it took some time before the Wintel model became standard, we will have to wait and see which model takes hold in home entertainment. Once a model is chosen as standard, there will be an explosion of products and services catering to that model in the market. Second, increasing competition will lead to alliances between companies in different industries. PC technology companies that have no presence in home entertainment might look to deal their way into the "digital home". For example, Microsoft is currently striking deals with several major phone companies to provide the platform for IPTV.

Many people also suspect that Apple might acquire Ti Vo in order to gain a presence in TV and create a service platform for video-on-demand. Third, the successful companies in the battle for the digital home will be the ones who earn customer loyalty. Consumers are reluctant to change their behaviors, especially ones like TV watching that are so entrenched. Companies need to deliver products and services reliably in order to facilitate a consumer shift to the "digital home". Finally, major content providers will hold up the process until they see digital distribution as a way to increase their long-term profits. Home video divisions of entertainment companies are extremely profitable.

They do not want to jeopardize this profitability just to be at the front of the technology curve. The infrastructure behind the "digital home" will have to be in place before the major studios choose to participate. Hardware - PCs Companies in the personal computer space will be looking to form new relationships with other companies in order to gain an advantage. Microsoft Microsoft is taking several approaches to its "digital home" strategy.

The first thing it did was to release the Media PC Center in 2002. HP was the first to build a PC set-top box to run this software. Other hardware companies have been working to make the box look more like a television companion than a PC. Microsoft's goal is to train consumers to consider buying a PC set-top box when they are upgrading their entertainment system. The current problem with this strategy is that the boxes are priced too high ($1900). In addition, Microsoft is going to incur significant pioneering costs in creating a market for these new "entertainment PCs".

In the event that this set-top PC does not become the standard, Microsoft is also creating strategic alliances with other hardware and broadband companies. They are developing software for Comcast PVRs and LG DVD recorders. They will receive $400 M from SBC for the use of Microsoft TV Internet Protocol Television Edition. Basically, they are placing bets hoping that one system will standardize. In the words of a marketing manager at Microsoft, "There is no one size fits all choice". Apple Apple is currently repositioning itself as a media software and consumer electronics company due to the success of i Tunes and the i Pod.

They were the first company to develop a successful synergy between consumer electronics and media delivery software. It is not unrealistic to expect some form of this strategy to emerge with other media. Apple will try and leverage their ability to simplify the product and market it to the early-adopters. Apple is notoriously quiet about their strategy, so we can only speculate at this time.

Hardware - Consumer Electronics Consumer electronics have a challenge ahead as boundaries are blurred between traditional CEs and computer hardware. Differentiation will be difficult as consumers continue to be price conscious. Samsung Samsung offers a great variety of products and devices for the home that communicate with each other using Samsung software. They have been able to make critical advancements in technology due to the infrastructure in South Korea. They are also leaving themselves open to forming relationships with any and all content providers. The question about Samsung's strategy is will their proprietary products sell in America with giants like Microsoft looming?

SonySony's plan is to create blockbuster products that marry their tech-strengths with their media offerings. Sony owns a movie studio and they are hoping to use the films to encourage people to buy their hardware products. Currently, their best opportunity is through the Play Station 3 because it has an established customer base. Play Station 3, along with the portable PSP might end up being be Sony's only products in the "digital home" market. Other sHP was planning to push HP products into the living room until they fired their CEO and lost their strategy.

Dell and Gateway are trying to build a presence through LCD and plasma screens while taking advantage of low cost manufacturing opportunities in Asia. Intel is looking to build a chip that will become the "brain" of the "digital home". Music Digital music players are one of the fastest selling consumer electronics products in history. Jupiter Research has estimated that the sale of portable digital music players will increase at an annual compound rate of 10% over the next five years. By 2010, 56.1 million Americans are expected to own a digital player, and 34.5 million households will have them. Software - Content on Demand Media conglomerates are adopting the concept of "anytime, anywhere" in their effort to provide customers real-time access to content, and to support the increasing convergence of home entertainment.

Distributors are dependent on content to drive broadband and mobile usage, while hardware manufacturers rely on content to drive the proliferation of next-generation devices. Challenges Record labels have reluctantly embraced digital formats due to the success of music services like i Tunes and Napster and the explosive growth of portable digital music devices. Major movie studios have been slower to change. The ancillary DVD business typically represents 60% of filmed entertainment revenues and is the cash cow for the film industry.

Mass-market retailers such as Wal-mart, Target, and Best Buy sell DVDs as a loss leader to drive foot traffic to their stores. DVD's are produced for $2 and sold for around $17, which represents a 750% margin. Movie studios are fearful that alternative distribution formats to the home may potentially cannibalize their sales, and hurt their relationships with powerful mass-market retailers. Piracy is another major concern across the board because of the relative ease of copying and mass distributing digital movies, music, and other content. Digital rights management (DRM) is a hotbed of discussion as it represents a sophisticated encryption system designed to protect usage rights granted to the end customer. However, DRM systems can be hacked into, and illegal decryption is a real concern that threats the copyright protection of distributed content.

A final hurdle that movie studios and record labels share is entrenched marketing behavior. Many executives staunchly believe that digital downloadable formats cannot fully replace hard formats such as DVDs and CDs because of their collectible nature. Analysts point out that while North American revenue from online video entertainment is expected to increase by 40% to $1.3 billion this year; however, DVD revenue is thirty times that size. So, the concern over piracy, the majority of profits realized from DVD sales, the leverage of mass-market retailers, and studios' entrenched marketing behavior have collectively slowed the adoption of more advanced digital formats for distribution and consumption. Progress Consumption patterns are noticeably shifting as digital technology and content become integrated into our everyday lives.

Increasingly, people are utilizing home entertainment products to manage and organize their photos, music, movie collection, television programming, finances, and their one-on-one interactions with friends and family. Distribution portals such as AOL, Yahoo, and MSN are taking advantage of the shift in consumption patterns by offering a variety of online content including music videos, adapted television newscasts, and clips of popular television programming. CNN, Yahoo Music, and the anticipated MTV Overdrive are offering value-added content that can be streamed or downloaded. Another trend is the increasing availability of specialized content over the Internet. Niche programs can find their audiences by providing streaming and downloadable content. Such content exposure can develop into other ancillary revenue streams if niche programs grab broader audience appeal.

As consumers become more attuned to hunting and gathering of information and content, consumers may change the way they select content. For example, people nowadays rely on their remote control to channel surf and choose what they want to watch. The next generation of content may be filtered in a more dynamic fashion, as consumers become more intelligent about the ways and means of selecting content to view in the digital space. Media conglomerates are still experimenting to determine successful business models for video on demand (VOD). Currently, the market for PC movies is largely limited to "road warriors" who watch film and TV content on laptop PCs while they are traveling. Cinema Now and Movielink are services that are gambling on VOD.

Movielink is a joint venture of MGM, Sony, Paramount, Warner Bros., and Universal. Using an a la carte rental business model, Movielink offers about 1,500 movies at a price point of $2.99-$4.99 per movie. Cinema Now has around 1,500 movies and utilizes three different business models (pay-per-view, rent, and subscription). A la carte rentals are $2.99-$3.99 per movie, download to own costs around $14.99 per movie, and the monthly subscription based services cost $9.95 per month or $49.95 per year. While companies like Movielink and Cinema Now experiment with rental, sell-through, and subscription based models, VOD is still in its nascent phase of adoption. High quality content, faster broadband connections and more sophisticated content delivery mechanisms will contribute to higher adoption rates of VOD and other forms of content on demand.

Software - Gaming In 2004, game software sales reached $7.5 billion. According to a recent report by Nielsen Entertainment, about 40% of American households own at least one game system (PC, console, or hand-held), 23% of game users own all three types of devices, 89% of gamers own a console, and among owners of consoles (e.g. Playstation 2, Xbox, and Game Cube). Gamers spend about 8.2 hours per week on video games. About 5.2 hours of that time is spent playing solo, while the remaining three hours are dedicated to multi-player gaming. The trend toward open play content systems, next generation of console systems, the growth of the portable market with products, and increasing broadband penetration are expected to change the way consumers buy and play games. Game developers are no longer focusing on a particular genre with set rules and narrative.

Instead, developers are trending towards games combining various genres and an open play system. The open environment enables players to become part of an interactive world or environment, further made attractive by sophisticated 3 D design and engineering. The customization of games is expected to increase in the next-generation of gaming content. Interactive, perpetual subscription-based games like Everquest, World of Warcraft and Ultima Online are expected to become more prevalent business models. Next-generation consoles will have value added features such as DVD playback, increased storage capacity, and digital video recorders. The next-generation Xbox will offer more interactive content with features like gamer cards, online marketplace, micro-transactions, and custom playlists.

Micro-transactions are based on the business model of users paying for individual game components. For example, these content-driven components can be anything from new game levels to unique characters, weapons, outfits, music, background, etc. The micro-transaction model is expected to become a significant revenue stream as online gaming becomes more prevalent. DFC Intelligence predicts that micro-transaction revenue will reach $1.8 billion in 2009. Micro-transaction is just one major example of an ancillary business that is fueling the future growth of the gaming industry. Software - Music In 2004, online music sales represented $1.9 billion in revenue, or 2% of total music sales.

Of that 2%, at least half comes from publishing and mobile-related sales, and not from digital downloads. By 2010, some analysts predict that online music sales will represent an estimated 17% of total music sale, or $6.1 billion in revenue. Music labels don't believe that digital revenues will overtake the CD sales in the near term, but could eventually over time as we see increased growth in electronic distribution and home entertainment convergence. According to a 2004 survey based on a sample size of 4,000, 51% of respondents indicated that they play music files on their PC. A large number of consumers are using their PCs and portable devices to store, personalize and copy digital music. The traditional stereo system is in danger of becoming extinct as adoption of digital music continues to grow.

Major manufacturers such as Philips, Kenwood, and Pioneer are working on next generation home audio systems that will enable network and broadband connectivity, storage, and streaming capabilities to distribute digital music. Apple i Tunes has the most successful download model to date, using a proprietary music format in lieu of an open standard. With its a la carte based online service and i Pod product, Apple has been able to capture nearly 70% of the digital music market. Two years after the launch of i Tunes, Apple sold more than 300 million songs and 10 million i Pod players ($2.2 billion in sales). Napster To Go and Real Networks Rhapsody offer subscription-based services, which provide recurring, more predictable revenue streams. Using Napster to Go as an example, customers can download as many songs as they want and copy them onto a portable MP 3 player.

The monthly subscription is $14.95 per month. The difference between an a la carte vs. subscription-based model is that subscription-based services "rent" the music whereas a la carte services "sell" the music. Distribution Microsoft, Intel, Hewlett-Packard, and other companies in the computer industry are looking to help shape the digital home by creating an PC for the living room that will connect all media devices. Microsoft has used its huge resources to make sure it gets a piece of all opportunities. Recently it has entered into deals with cable companies and telecommunication companies to use connect televisions to the internet. In order for these computer companies to be able to really be players in the digital home, the technology must be improved.

Broadband technology will become a very important issue. Broadband technology is extremely important in understanding distribution in the digital home. Voice and data have been transmitted over the Internet for years. With increased bandwidth, high quality video and sound will be able to be transmitted to televisions. Forrester Research estimates that 41 million households will use the Internet to send and receive photos, music, and phone calls in 2009. This compares to 10 million households that do today.

Broadband penetration is an important issue with the relatively low penetration currently in the US (36%). Large phone companies are making improvements to ensure they can meet the need. FCC is now allowing power companies the right to have broadband over power lines. This increased competition will lead to improved speed and bandwidth. Verizon and SBC are committing several billion dollars in fiber to bring broadband to the home. This increased high speed broadband will help online content providers.

Currently it takes more than five hours to download an entire DVD. At an increased speed of 20 megabits per second, it would take less than an hour. Ultrawideband technology could be extremely important in the future of the digital home as well. Ultrawideband technology (UWB) attempts to connect all types of entertainment and communication devices in the home without wires. As of now, there are two competing standards. Motorola's spin-off, Freescale, represents one competing standard while Intel and Texas Instruments have created the Multi Band OFDM Alliance (MBO A).

Analysts are expecting a 400% CAGR from 2005 to 2008. Ultrawideband technology allows data transfer speeds from 100 Mbps to 500 Mbps. UWB's low-power radio frequency doesn't interfere with other devices. The speed and short range of UWB will make it possible to create a personal area network.

Electronic devices, PCs, and mobile devices will be able to transfer heavy data rather easily. South Korea Case Study South Korea is considered the world leader in fixed-line and wireless (WiFi) broadband. Broadband penetration in South Korea is nearly 80%, while the US lags at 36%. In a nation of 48 million people, South Korea boasts 12 million broadband lines and 10.9 million DSL lines.

Furthermore, the country's broadband connections are four times faster than that of the US. About 30% of the world's WiFi hot spots (e.g. cafes, shopping malls, hotels, etc.) are located in South Korea. Its broadband success can largely be attributed to government support and generous subsidies used to spur the nation's broadband growth and technological innovation. The key content drivers are online gaming, music, movies, and animation. Over the past few years, broadband and mobile users have downloaded music, movies, and TV shows. Online gaming has translated into a national pastime, considering that 54% of South Koreans play online games.

The majority of South Korea's population has digital TV, and 58% of broadband users download movies. In fact, Korea has the world's highest rate of video and movie downloads. There are other telltale signs of Korea's technological sophistication and high consumption of digital goods and services. The Korea Information Society Development Institute has estimated that the peak traffic on its broadband lines is five times greater that on US networks. The average Korean spends more than 20 hours a week online. In 2003, 68% of stock trading was completed online, which is significantly greater than the 25% in the U.S. 12% of retails sales are attributed to online shopping.

Home shopping networks like CJ Home Shopping and LG Home Shopping are seeing more of their sales coming from online shopping vs. the traditional TV home shopping channels. Movies are being consumed just as i Tunes songs are in the US. A hit movie can be downloaded in less than a minute, and cost only 80 cents. Koreans, as well as the Japanese, are considered early adopters of technology in Asia. The presence of global technology leaders such as Samsung Electronics, LG Electronics, SK Telecom, and KT Corp. has fueled the digital economy.

Over the next couple months, South Korea is expected to see the launch of terrestrial and satellite-based multimedia broadcasting services, which will provide digital video content to mobile phones. South Korea represents an ideal market for this type of service because urban consumers spend a lot of time on subways and buses. The average consumer uses his or her cell phone to send text messages and to play games. The South Korean government has a significant stake in the country's digital economy, and has predicted that multimedia broadcasts will create an additional 600,000 jobs over the next 10 years, and account for $13 billion in product sales and services. Outside observers believe that Korea's broadband success is due to a combination of factors, including "pricing, infrastructure, demographics, geography, deregulation, and clear user benefits". Conclusion In conclusion, we expect to observe significant convergence of technology and entertainment, which will either be in the form of a closed wired entertainment network (PVRs, On Demand) or an open wireless data network (web, email, VOIP, IPTV).

We predict that the open model will become a standard in the future. In support of our thesis, we would like to recapitulate four major trends that will likely happen in the near-term future. 1. A standard (s) will be created in the digital home network.

Once a model is chosen as a standard, we can expect to see a proliferation of products and services that are compatible with that standard. 2. Increasing competition will lead to increased synergies and alliances amongst hardware, software and distribution companies. 3.

The companies successful in the digital home entertainment space will be the ones who earn customer loyalty. 4. Major content providers (e.g. movie studios) will hold up the process until they see digital distribution as a way to increase their long-term profits..