The iPhone Did OK, Just OK

You heard it right. The iPhone did ok, just ok.

Despite AT&T's spetacular quarterly numbers (beating analyst consensus by 3 cents per share in profit), its stock price did not bulge this morning. Elsewhere, Apple's stock price declined by 3% in early tradings. AT&T's good news was offset by its release of iPhone activation numbers. The company announced that during the launching weekend, it activated 146,000 iPhones. This number is far smaller than estimates published by various financial analysts, ranging from 300,000 to 500,000. It's not clear whether AT&T's activation disasters have lead to the discrepancy, since those estimates are about retail sell-throughs, not activations. Even considering this factor, we believe the iPhone has not met the expectations of many financial analysts. Parks Associates, on the other hand, maintains a rather realistic opinion about the iPhone, as detailed in this whitepaper. The iPhone, due to the high price point and technological shortcomings, will face numerous challenges. Don't take me wrong, I've played with it and it's a beautiful device, but as a savvy consumer, I'm not ready to empty wallet for it, not yet.

In a newly published multiclient study (press release here), Mobile Entertainment Platforms and Services (Second Edition), we wrote the following;

Facing a saturated market and increased competition, mobile carriers are trying to differentiate from each other through various means, including mobile entertainment offerings and exclusive handsets. However, on a fundamental level, good network coverage and high voice quality are still the top considerations for all consumers. Only when these two requirements are met will they consider other differentiators. In the U.S. market, exclusive handsets, mobile entertainment services, and convergence offerings (such as remote DVR programming) provide further differentiation only when the targeted audience is “mobile aficionados;” other segments do not care much about these factors. This fact poses a potential adoption barrier for the iPhone. “Mobile aficionados” are likely to be attracted to the phone, but they might be turned off by the slow network connection. On the other hand, for mass market consumers, Verizon’s advertisement of “It’s the Network” might resonate better than AT&T’s “Only We Have the iPhone” message.

The initial results have confirmed our analysis. A closer examination of AT&T's Q2 numbers reveals that the iPhone did make an impact to its quarterly subscriber growth, although nothing dramatic. It added 1.46 million new subs, compared to 1.26 million in Q1. I'm looking forward to Verizon Wireless' Q2 webcast on July 30, which will surely provides us with more insight.

Cable Reticence in Home Networking

For telcos on a worldwide basis, I don’t think there’s any question that they see the value of things like home networks and residential gateways, especially in places like Europe. I think there’s a reason why France Telecom and British Telecom are being as aggressive as they are with deployments of Livebox and the BT Hub, respectively, as local loop unbundling is going to force them as service providers to truly differentiate with their services. There are some really interesting applications using the home network, such as fixed-to-mobile communications handoffs (even some femtocell work), and IPTV has really raised the stakes for carriers on a worldwide basis to examine “no-new-wires” bridges, adapters, and embedded solutions as ways in which to significantly reduce the install time.

Given this push by the telcos to roll out their differentiated services, you'd think that this might spur some heightened activity among cable operators to more actively develop and deploy home networking-related solutions. However, I'm not really sensing much activity in this direction. Although we had a couple of cable executives on a recent CONNECTIONS discussion panel regarding home networking, the typical comment we have heard from the MSOs is that they'll deploy home networking solutions in greater numbers once they see “the business case.” We have also heard from some chipset manufacturers (modem, set-top box space) that the operators are really struggling to figure out how to best implement solutions like whole-house DVR without taxing the processor capabilities of their current set-tops. I think that home networking is really going to be a critical element in providing customers with a truly valuable and differentiated service (look at Verizon’s Home Media DVR – the last public comment Verizon made was that it was deploying at about a 12% take rate among FiOS TV customers).

Among the cable operators, home networking may indeed be an insignificant concern, at least relative to what other issues they're facing. Certainly, questions about how best to optimize their networks (digital simulcast, channel bonding, switched digital video, etc.) and dealing with the FCC's "separated security" order for set-topx (CableCARD, et. al.) are definitely chief concerns. However, we're disappointed that what we're hearing from cable right now about home networking is a big yawn.

FiOS TV Updated Interactive Media Guide

When we released our most-recent IPTV analysis (IPTV: From Quadruple Play to Multiplay), we dedicated much of the report to discussing what really is going to set an IPTV or a Telco TV offer far apart from competitors such as cable and satellite offerings. It's safe to say that many rollouts have - to date - underwhelmed the senses, as carriers on a worldwide basis are carefully ramping up services and are mostly playing a "me too" game. To be fair, transforming a telephone company to an entertainment provider is enormously challenging, and a "baby steps" approach is certainly appropriate, under the adage of "underpromising and overdelivering" on services. And, certainly, there are exceptions worldwide to the "me too" notion of IPTV, as certain providers have deliberately chosen IPTV solutions that offer them a great deal of flexibility to pursue applications in fixed-mobile and communications convergence, flexible programming, roadmaps to targeted advertising and other interactive television apps, etc.

I have been impressed to date with Verizon's vision for television services, too, and I was an eager early adopter of FiOS TV because of some of the features that excited me personally. I really believe that Verizon's got a real leg-up on the cable competition with features such as the Home Media DVR. From what we've been told, cable operators are still looking for a business model to support home networking efforts (and, according to some sources, really scratching their heads about how best to implement home networking on their set-top boxes, with concerns about processor requirements, et. al.). I'd argue that the 12% take rate for the Home Media DVR (a public figure given by Verizon officials in September 2006) at $19.95 a month - is proof that customers will pay for services that offer more in the way of customization and personalization of their viewing experiences, extending to home networking features that offer not only "any time" aspects, but get them closer to "anywhere" functionality.

Verizon has just announcing changes to its interactive media guide, and I was again impressed with the improvements to search, content organization, and graphics capabilities. The roadmap for future improvements - including support for Internet radio, videos, podcasts and games is also really interesting.

There are definitely some suggestions I have for Verizon as they look to future upgrades to the FiOS service, the different features, and the media guide. Specifically, I'd suggest:
- Allowing more control over DVR functionality from the client set-top boxes. I'd really like to know if programming and deletion, specifically, could be enabled from those secondary boxes.
- I'd love to see at least some basic tagging of DVR content occur. For example, what programs have I started but not yet finished? Maybe there is some color coding that could occur.
- Currently, the "Conflict" messages on the DVR aren't 100% useful. Many times, I'll find an overlap problem (one program starts at two minutes before the hour while another is still recording). It would be nice to have some more refined options for resolving the conflict prior to a "Cancel Recording" solution.
- Finally, the current remote is very limited in terms of what I consider to be non-intutive button location. After nearly a year with the service, I still struggle with finding the right way to jump channels, mute a program, and fast-forward or rewind a recorded or VoD program.

"Triple play" is the magic word

Oberon Media, the leading casual game solution provider, today announced a deal to cement its "Triple Play" strategy. The company acquired PixelPlay, one of the few TV STB gaming company in the U.S.. Not too long ago, it also bought iPlay to grow its presence in the mobile gaming market. This is a great decision in our perspective. Oberon is without a question a leading white-label solution provider for Internet portals and broadband service providers. It's behind well-known gaming sites such as MSN games, EA Pogo, Yahoo! games, and AOL games and it also supports BSPs such as Verizon, Comcast, and AT&T in their casual gaming efforts. It has expertise in both digital distribution and content aggregation. PixelPlay's expertise is content aggregation and digital distribution for the TV Set-top box platform. Sounds like a match made in heaven?

As the world's leading service providers look at triple play or quadruple play (in fact, shouldn't Oberon call this "Quadruple Play" since they now serve PC, console, mobile, and TV? That'll be more fashionable, right) as their key efforts for building up customer and revenue base for the next several years, solution providers need to catch up. "Cross-platform" content offerings will be key. TV set-top box is a great platform for casual games. For the past several years, we've been hearing that there will be a breakthrough in this market every single year. It has not happened but now it seems the market is finally on the edge of getting somewhere. Different pieces are coming together, OCAP (Oberon, have fun with it), more competitive offerings from new entrants to the TV market and hence more pressure to differentiate on value added services, and new technology development. Service providers are all paying attention to the Wii and try to learn a lesson from its success. We have seen some really impressive demos, including an NDS demo showing a 3D-like golf game with a club controller. Of course, there are also remaining challenges for the market, including OCAP, which can be both a curse and bless. Another main inhibitor is that service providers have so many things on their laundry list, PVR, HD, VoD, etc., and gaming ranks relatively low. This is another reason that buying into the market is a better solution than building a presence from the groud up. Oberon will need experts like Ron and Jonanthan from PixelPlay to help them quickly move along the learning curve. The TV STB gaming market can be as complex as the mobile gaming market, with so many different systems and configurations out there. In addition, any decisions made by service providers take time.

With this acquisition, it'll be interest to see what happens to the other STB gaming vendors out there like Buzztime, TVHead, NDS, and Zodiac Interactive.

For a more complete analysis of the STB gaming market, you can download a whitepaper I wrote a couple of months ago here . The whitepaper is titled Set-Top-Box Gaming: from Wasteland to Promised Land. Enjoy the Kool Aid. It's on us.

Windows Home Server Released for Manufacturing

Based on today's Wired magazine article, the Windows Home Server product is coming soon.

Microsoft’s got two major opportunities here with the Windows Media Home Server product. Clearly, the home computer’s role as media server is unchallenged in most homes – it is THE point of centralized multimedia for pretty much everything except recorded TV (except for the minority of consumers who went out and bought a tuner-based Media Center system). So, making the media centralization and sharing experience simpler is going to be critical for Microsoft, as it looks to create stronger linkages to products outside of the traditional PC ecosystem. The second point is that it may set the stage for Microsoft to continue to diversify a media server strategy beyond the PC, to more dedicated devices. We see clear trends that indicate that consumer-based dedicated storage is going to be a real push by Microsoft and its traditional group of customers – HP, for example.

Microsoft seems to be stressing the Xbox as an extender and Windows Server as the tools for facilitating more media server-like capabilities in the home (along, obviously with the push for Microsoft TV). Intel has indicated good uptake of the Viiv systems, but the actual living room form factors that we were expecting to see have been far below our original expectations. HP's pullback from the DEC space is also indicative to us that the PC players are going to have to seek media server-like functionality from platforms outside of the living room. That obviously means that home networking and consumer storage that also acts as a media server and content portal of sorts start to take precedence.

As we outlined in our "What to Expect" thoughts at the CONNECTIONS conference a couple of months ago, we expect that 2007 and 2008 will be significant years for the reintroduction of media adapter devices and for a renewed focus on consumer storage that places as much emphasis on content sharing as it does safe and secure backup and safekeeping of digital media.

Wii, don't make us hate you!

So I sent a Youtube video of Reggie's (for the uninitated, Nintendo's America chief) E3 talk to a collegue. She's a newly-born gamer who fell in love with the Wii. She even spent time customizing her Mii. The reason I forwarded the video is that I think she would be ecstatic about the Wii Fit. I was surprised to receive back this from her. Nintendo, please listen carefully, don't make us hate you! Don't play the tricks you've played with core gamers for ages! We are different!

Here's what I got:

Michael, maybe you’ll have the chance to quote (for the Wall Street Journal, I guess?) -

“consumers love the new technology and options built onto the Wii,
but their pocketbooks are starting to get angry for numerous new games that also require purchases of multiple new controllers.

Why can’t these games be built into the original Wii controllers?
Consumers might start to fade momentum if Nintendo does not correct this movement.

Besides, it is annoying to keep switching controllers for each game. Too much.

Although, all of this is still cool, for both the technology and the idea creation.”

LG and Samsung Phones Lead in Advanced Mobile Entertainment Features

LG and Samsung are the top mobile-phone brands in the U.S. for advanced entertainment features, leading competitors Motorola and Nokia in adoption of phones with support for mobile TV, music, and games, according to Parks Associates recent research.

Among owners of LG and Samsung phones, 12% and 11% reported having mobile TV features, respectively, compared with 8% of Motorola owners and 0% for Nokia owners. Among the four leading brands, Motorola ranks third overall, and Nokia lags significantly in advanced entertainment features. Only 6% of Nokia phones support purchase of music tracks, compared with 22% and 20% of LG and Samsung phones, respectively.

Primary Research of U.S. Home Builders Quantifies Value of Electronic Amenities in New Home Construction

Parks Associates and Hanley Wood’s DIGITAL HOME announce the 2007 edition of their highly successful Builder Insights, an ongoing project featuring an annual primary research study of U.S. home builders.

In Builder Insights 2006, Parks Associates and Hanley Wood determined that many U.S. home builders are currently offering electronic amenities in their homes. Further, despite a soft home building market, the market value of these systems reached $8.9 billion in 2005 and was on target to grow 5-6% in 2006.

Connection Research Announces Cooperation with Parks Associates

US-based market research firm Connection Research and Parks Associates today announced a cooperative agreement where Connection Research will sell Parks Associates’ research reports and studies in Australia.

Connection Research will be a reseller of all of Parks Associates’ products and services, including the full range of the company’s digital lifestyles, digital media habits, digital health and electronic gaming reports. The two companies have also agreed to cooperate on research activities and provide assistance to each other in developing cross-regional products.

For more information on Connection Research, please visit http://www.connectionresearch.com.au/

The Logitech MX Air Mouse

Hillcrest Labs is making some strides in getting its technology integrated with more partners. I was interested by the July 12 press release, announcing the Logitech MX Air Mouse. The functionality is definitely something we're keeping an eye on, and the concept supports one of our Areas of Opportunity in the Digital Lifestyle Market that we outlined at the CONNECTIONS 2007 conference. We told attendees to keep an eye out for a growing emphasis on search and navigation.

The funtionality embodied by MX Air Mouse makes it well positioned to take advantage of the ever-increasing blending of two-foot (home computer) and ten-foot entertainment and multimedia experiences. As the television evolves to embrace a much more rich multimedia experience (blending programming with Web content, personalized and user-generated content, and communications), you’re going to see navigational tools such as the program guide and traditional remote control evolve to embrace more search and navigational functionality. We expect that the EPG will morph to a much more graphics-centric guide, which will bring “point-and-click” requirements to the traditional remote control. At the same time, the home computer is already the multimedia hub for the home, and users are going to want to extend the functionality beyond the desk. So, the point-and-click functionality of the computer mouse – which has been constrained to the horizontal plane – is going to have to evolve to incorporate a much less-restrictive functionality.

Game Advertising Spending to exceed more than $2 Billion in 2012

Game advertising spending in the U.S. will grow from $370 million in 2006 to more than $2 billion in 2012, according to Electronic Gaming in the Digital Home: Game Advertising, a new report from Parks Associates. Over that time, game advertising will achieve a compound annual growth rate (CAGR) of 33%, much higher than that of other major advertising media, including TV, radio, print, and the Internet.

“Advertising in electronic games had an average monthly household expenditure of less than 50 cents in 2006, while broadcast TV was at $37, meaning advertisers are not using the gaming medium to its full potential,” said Yuanzhe (Michael) Cai, director of broadband and gaming, Parks Associates. “If executed correctly, game advertising can provide a win-win solution for advertisers, developers and publishers, console manufacturers, game portals, and gamers.”

Electronic Gaming in the Digital Home: Game Advertising paints a complete picture of the fledging game advertising industry. The report includes analysis and forecasts for different game advertising models and provides profiles of 26 key players in the game advertising industry and comprehensive consumer perspectives.

Sprint Disconnecting Customers Because of Excessive Customer Service Calls

Sprint is choosing to disconnect a group of wireless customers for excessive calls to the customer service, citing that Sprint is unable to serve them adequately. To view the letter sent to customers, click here: http://news.com.com/2300-1036_3-6195014-1.html

WiBro Picking up Pace in South Korea

This is interesting news coming from South Korea, according to a CLSA newsletter I subscribe to. The information is interesting enough in itself and I'll post it as is.

It turned out that many of the WiBro users are male workers in their 30s. According to a recent KT survey of its WiBro service subscribers, individual users took up 74.2% while company users were 25.8%; male users(79.9%) were 4 times larger than female users (20.1%); in the age segmentation, users in their 30s accounted for 37.1%, 28.5% for 40 something users and 19.3% for 20 something users.

Meanwhile, KT WiBro subscribers have surpassed 20,000, an increase of over 10,000 in June alone, with growing popularity of WiBro USB modem released early June among laptop users. Recently, the membership is increasing by 500 a day.

KT said that considering WiBro service is only available in Seoul and Metropolitan area, such membership increase shows huge growth potential of WiBro service. It also predicted that the increase in subscribers will be further accelerated during the second half with the release of convergence product of Hi-speed Internet and WiBro, and the increasing number of devices like Ultra-Mobile PC and WiBro phone.

We are not sure what's KT's sampling methodoloy but the demographics of users skew a little younger than mobile broadband users in the U.S. It makes sense since the majority of WiBro users are individual subscribers instead of corporate subscribers and they are likely to be technology early adopters. If KT can sustain its current growth, then the company will pass 100,000 WiBro subscribers before the end of 2007. SKT, the other WiBro service provider, will likely to pay more attention to WiBro as well. In terms of devices, USB dongles, PC card, and smart phones are likely to be the most popular. On my panel at WiMAX Strategies a couple of weeks ago, a Samsung executive mentioned that the Ultra Mobile PC in its current incarnation was not a success...