Texas Energy Deregulation Has Led to This?

[Note: this entry was updated on February 11, 2008]

Great column in The Dallas Morning News by Steve Blow the other day. Steve reminds us of where deregulation of the retail energy markets has led Texas consumers.

"But the numbers don't lie. And if deregulation is such a wonderful thing, let's just compare electricity bills with our neighboring states. Here's the bill for a home using 2,000 kilowatt-hours:
• Oklahoma: $171.60
• Arkansas: $174.60
• New Mexico: $179.80
• Louisiana: $188.00
• Texas: $249.60 [this figure was highlighted by me]."

If you look at the average retail price of electricity paid by consumers, Texas consumers were paying 16% more per kilowatt hour than the national average as of year-end 2006 (10.34 cents to 8.9 cents); this from the Energy Information Agency. The Dallas Morning News has a good article on January 19 that explains that the rise in natural gas prices since 2002 (prices paid by consumers have risen 74% since 2002 - the year that deregulation took hold) is the main culprit. So, even though the wholesale market was deregulated, there hasn't been any wiggle room for the providers to actually lower prices. This is the logical explanation, but the angry consumer inside me feels like something just isn't right here. And, perhaps consumers are as much as fault as anything, since the Morning News says that 61% of Texas consumers are still sticking with the incumbent - TXU. No wonder a number of investors - among them Kohlberg Kravis Roberts & Co., Texas Pacific Group, etc. - decided that a purchase of TXU Corp. in late 2007 made sense. The utilities are going to continue to basically print money if consumers don't take a larger role in choosing alternative (and lower-cost) providers.

CES is over, so now what? Analyst predictions.

Huge TVs and digital photo frames. Smarter remotes and 3D games. Home controls, home networks and home monitoring. By now everyone knows the buzz from CES, but what's next?

Parks Associates analysts reveal the following consumer research data and forecasts:

• Consumers want videos & programs on demand more than anything when it comes to value-added TV features.
• Broadband video services pushing a movies-only format underperformed; movie rentals/downloads from the Internet were only $99 million in 2007.
• Consumers are buying more broadband video - 48% of broadband Internet users watch Web video on at least a monthly basis and 20% are downloading longer episodes.
• More people use iTunes to download videos longer than 10 minutes. Amazon.com's Unbox & BitTorrent services follow in second & third place.
• In 2008 and beyond, we'll see a greater emphasis placed on bringing broadband video to the television via media adapters, game consoles, and network-connected devices such as TVs, stand-alone set-tops, and DVD players. Broadband video revenues for content consumed at the television will total $1.5B by 2012.
• The connected home - More people want the ability to monitor webcams in their homes from any Internet-connected device, more so than to control a home's thermostat from an Internet-connected device or to control lights from an Internet-connected device.
• Mobile Internet will begin to see mass market adoption, and the form factors will diversify to include devices such as portable multimedia players (PMPs) and portable game consoles.
• There will be major investments in the cable MSO space. Switched digital and DOCSIS 3.0 will help to reclaim bandwidth and expand offerings.
• Place-shifting features (currently embodied through products such as Slingbox and Orb Networks) will move beyond after-market products with nearly 53M WW households using such features by 2012.
• Virtual worlds will ride the hype cycle, and we'll see a growing emphasis on these applications in corporate settings as a means to enhance collective collaboration.
• The 700 MHz auction will spur more innovation on the mobile phone handset and will reduce the influence of the mobile carriers.
• Home theater systems become the next "appliance" offered by home builders.
• Europe will be the decisive market for powerline networking.
• Tracking new payment methods (such as micro-transactions) for online consumers will be an interesting model to watch.
• The first major cracks will appear in the movie distribution widows, and video-on-demand services will be enhanced by the earlier availability of certain content.
• The in-car entertainment experience begins to reflect the living room.

For more information visit http://www.parksassociates.com/.

CONNECTIONS™ to address consumer trends and advanced technologies for broadband sharing, remote management, and other services

With service providers supplying over 70 million households worldwide with residential gateways by 2012, CONNECTIONS™: The Digital Living Conference and Showcase, June 24-26 at the Santa Clara Convention Center, will focus on the new business models in broadband sharing, remote management, and other advanced services afforded by these technological advances.

CONNECTIONS™, produced by Parks Associates in partnership with CEA, is the largest executive conference and showcase focused on the market developments and growth factors for advanced digital lifestyle solutions. Conference sessions provide high-level research, knowledge, and analysis to over 1,000 executives from the converging industries developing consumer products and services.

CONNECTIONS™ offers key benefits including dialogue between service providers and manufacturers, scenarios in deploying triple-play services, and a networking environment featuring today’s new product strategists.
CONNECTIONS™ will feature Rebecca Jacoby, Senior Vice President and Chief Information Officer, Cisco Systems, Inc., as a keynote speaker. Early Diamond Sponsors include Hillcrest Labs, IBM, MoCA, Motorola, and Peak8 Solutions.

“With providers deploying gateways into homes over the next several years, this market will be a hotbed for new service opportunities,” said Tricia Parks, CEO, Parks Associates. “For example, the number of U.S. households with multiroom DVR features will grow to 17.5 million by 2012. Understanding consumer perspectives and service provider needs as well as technology challenges is in the mix of success. From infrastructure to end user, CONNECTIONS™ speakers and Parks Associates’ analysts offer insight for every critical stop along the value chain.”

Deadline for CONNECTIONS™ speaker submissions is February 1, 2008.

Residential Gateway Deployments

A couple of weeks ago, we published our latest analysis on the residential gateway markets, which included a global scan of the global service provider push into deploying home networks. The press releasepredicts 71 million worldwide households with residential gateways by year-end 2012.

It was good to see some blogger feedback from folks like Rick Merritt, who writes for EE Times. Rick notes that we're bullish on the European market in particular, musing if this is a sign that European carriers might "pull a GSM" when it comes to home networking and drive their favorite powerline networking solution to mass-market. We couldn't agree more, and one of our specific comments from this recent research is that Europe will indeed be the deciding market for powerline home networking.

Also, Rick does note that our forecasts may be a bit optimistic. That's okay - we need skeptical journalists who ask the hard questions! It has, however, been interesting to receive feedback from a variety of folks in the industry who have reviewed the forecasts since the report's release. Europe may grow even faster than what we've projected, based on the comments we've received. And, Korea is definitely a market to watch in Asia. KT is aggressively rolling a VoIP initiative in 2008 that will include residential gateways deployed to every new broadband subscriber. This should reach 100% of new subs by the end of the year.

U.S. Officially Past the 1M IPTV Subscriber Mark

With Verizon's announcement that FiOS TV subscribers grew to 943,000 by year-end 2007, the United States has officially joined the upper-echelon of countries with IPTV subscribers. With AT&T's numbers reported last week, the two companies are serving 1.1 million subscribers. The U.S. is now 17% ahead of where we thought it would be in terms of IPTV services uptake when we released IPTV: From Quadruple Play to Multiplay. What we're really interested in following in 2008 is whether the ARPUs reflected by IPTV services are substantially different from those being reported by the cable MSOs. One burning question we're seeking to answer is - "Do consumers care about features beyond the basics?"

The lessons of "Quarterlife"

NBC has set a television premiere date for its acquired Web show Quarterlife. It will debut on February 16.

I'd expect to see a whole lot more of these types of moves (Web-to-TV and TV-to-Web) with primetime television programming, although more of the former, at least inititally. Having a creative team build Web content from the ground up and build a loyal audience before moving to TV is certainly something we can expect to see the longer the writer's strike drags. I would also think that the networks will consider taking some struggling programs and consider moving them to the Web. In this way, a loyal audience can still view the program (and associated ad content). Of course, having this sort of transfer only complicates the contracts between the studios and their creative teams, because there would be different compensation expectations set depending on how the content is being released.

Parks Associates releases new report, Connected Medical Devices: Analysis and Forecasts

Parks Associates releases new report, Connected Medical Devices: Analysis and Forecasts

This report analyzes the needs for adding networking support to medical devices for home monitoring and diagnostic solutions, probe industry drivers that will help shape the industry’s growth in the future, highlight advances in silicon and biomaterial technologies, and discuss key issues that device makers and solution enablers need to address in order to clear the way for fast consumer adoption. Finally the report will profile the emerging players in this market segment.

“Networked medical devices will help transform health care delivery in a big way,” said Harry Wang, Senior Analyst, Parks Associates. “As the industry is embarking is moving toward preventive care and home-based care solutions, networking technology has spurred unique applications and opened up new opportunities for the medical device industry.”

Visit http://www.parksassociates.com/ for more information on Digital Health or Steve Harvey at steve.harvey@parksassociates.com.

The cable set-top box = the dodo?

The January 17 article in The Wall Street Journal asserts that the tru2way™ announcements made at CES between Panasonic and Comcast could be a sign of the soon-to-be shrinking influence of both Motorola and Scientific-Atlanta (Cisco) in the North American cable CPE business. Perhaps. If cable operators can persuade a growing number of device manufacturers to incorporate two-way interactivity into their devices, there is certainly a reduced financial burden on the MSOs to both deploy and support separate boxes. And, logically, it makes sense that the more devices that can connect to a cable network's interactive features, the more value a customer will place in that service. This could encourage a continued uptake of features like video-on-demand and other interactive applications. Certainly, from the cable operator's perspetive, the ability to target ads at more people via more devices is also part of the business case calculations.

Although this all sounds positive, rumblings from the industry - and particularly the consumer electronics companies taking the risk to implement tru2way into their devices - indicate that all of the links of the chain aren't quite together. For example, we've heard frustration that the cable operators haven't put enough resources (marketing, incentives, etc.) into establishing the kind of consumer awareness that it will take to drive sales of tru2way products. Also, the retailers themselves haven't stepped up in full support of selling the devices, either. It's obviously a huge risk for them to set aside shelf space for these products, with no guarantee that they'll sell to their expectations.

If cable is serious about seeing tru2way's success, the industry has got to put its time, effort, and money into some significant marketing support. There's a real danger that jilted CE companies will simply choose alternate routes to deliver content to their customers (see this blog from last week). So, while Motorola and Scientific-Atltanta's influence may be waning, the same could be said for the cable industry overall.

AT&T's IPTV Subscribers

AT&T's fourth-quarter earnings release indicates 231,000 U-verse TV subscribers. That's a substantial increase from just 3,000 a year ago.

“Google Will Never Become an Ad Agency,” Yeah, Just Eliminate It!

Google is working with Publics Groupe, one of the marquee advertising agencies in the world, to mesh its technology with the ad agency’s creative mind to better serve their mutual clients—advertisers. The partnership was revealed yesterday. According to Reuters’ report, Google will exchange its technological know-how for Publicis's analytical and media planning expertise. The pair characterized the collaboration as a means to better serve advertisers and help grow the digital advertising market. Who will gain most from this collaboration? In my view, definitely Google.

Since Google established its business model on advertising, its every move has given a strong hint that one day it will eliminate all the intermediaries between advertisers and consumers. Over the last three years, this goal has become quite obvious. Through acquisitions, it has amassed an impressive pool of resources touching almost every part of the advertising value chain. Almost, that is, except for the creative part. Now with access to Publics’ creative minds and practices, they will just learn everything that advertisers will ever want to know, and find technology to either improve it or automate it. Creative business, in my view, is the last candy can that Google has not touched and the only asset that traditional ad agencies can tout as “core competence” to their advertiser clients.

Eric Schmidt told reporters that Google will never become an ad agency. He meant the ad agency in a traditional definition. Google today is one of the biggest digital intermediaries between advertisers and consumers, and traditional ad agency’s role in the digital advertising space has eroded substantially and will further erode because of the presence of Google and many of its peers.

Sir Martin Sorrell, Chairman of the world’s largest ad group WPP, has already seen it through. He described Google as "a short-term friend and a long-time enemy." I agree. Google and Publics’ relationship is a honeymoon, not a long-lasting marriage.

Big Win for Soma

Soma Network, a company virtually unknown outside of the broadband wireless industry, won big yesterday. BSNL, India's largest state-owned telecommunications company, plans to deploy a Mobile WiMAX network, with Soma being the sole equipment vendor. The deployment will be the largest Mobile WiMAX network in the world, covering three of India’s fastest-growing telecom circles: Gujarat, Maharashtra and Goa, and Andhra Pradesh. This new network will provide broadband data and voice services to a service area reaching over 200 million people. With WiMAX prospects uncertain in China, this is as big as it goes. To put it in perspective, Sprint's planned deployment will cover 100 million people and the contract is split among several large vendors including Moto, Nokia, Samsung, etc.

I think one important for Soma's victory over other larger vendors is that its technology is built to support data, voice, and multimedia services. Most of its deployments so far are in developing countries in Asia, including Malaysia. Motorola must be very disappointed since the company has won several contracts in Asia, including one with Wateen in Pakistan, India's neighbour. The Indian government is sold on WiMAX and the technology is an important part of its “Vision 2010” mandate to make broadband services ubiquitous. At the end of 2007, there were only less than 3 million broadband subscribers in India. We anticipate that number to explode to moer than 20 million by 2011.

Virtual rip-offs

Okay, this virtual world stuff has officially gotten ridiculous. Today's Wall Street Journal notes the Second Life creator Linden Lab has had to pull the plug on a number of virtual banks that were created in the online world. These banks were taking in deposits of Linden dollars and promising hefty interest rates. The bank owners were then using those deposits to fund virtual investments or to gamble on other Websites (since Linden dollars can be exchanged using PayPal).

According to the Journal: "Linden officials won't say how much money has been lost, but a run on another virtual bank in August may have cost Second Life depositors an estimated $750,000 in actual money."

Am I the only person left who hasn't figured out some get-rich-quick scheme? I didn't get on the Internet bubble, I haven't spammed people to buy penny stocks in a "pump-and-dump" scheme, I have yet to flip a house, I haven't created the e-mail chain letter claiming to be a foreign banker seeking to deposit the assets of some former dictator, and now I'm getting shut out of some virtual investments.

Darn it all.

10 Million Reasons to WOW

Blizzard Entertainment announced that its subscriber/user base has finally broken the ten million mark, including 2.5 million in North America, 2 million in Europe, and 5.5 million in Asia. These are all active users and subscribers who are paying a monthly subscription fee, have an active prepaid card, or are still within the free month of access after game purchase. It's no small feat considering that three years ago, the MMORPG industry generally believed that the pool for potential MMORPG players in the U.S. is less than 1 million. WOW has been extremely profitable and contributed to the resurgence of Vivendi's gaming business. With some simple back-of-the-envelop calculation, WOW pulls in more than $2 billion in annual revenue with its current subscriber/user base if we assume $20, $15, and $5 monthly ARPU for European, U.S., and Asian players.

The subscriber growth has been slowing down a little bit-it took one year to grow from 9 million to 10 million. Churn might have been a reason as many gamers who have reached level 70 may have dropped out, despite Blizzard's effort to create new content and challenges for them. Blizzard is expected to release new content this year, hoping that loyal fans will return. For Asian gamers, the company might open a portion of the world to experiment with free2play, micropayment-supported modles although currently nothing has been confirmed and Blizzard has always been cautious about introducing a primary market exchange into WOW. There has also been rumors about WOW coming to game consoles, especially after the announced merger between Activision and Vivendi Games. We don't believe such a scenario will happen in the near term, unless Vivendi gets to keep the lions share of service revenue and console makers make necessary concessions. In addition, console accessories also need to become more MMORPG friendly.

Hollywood: "All our remaining 2007 inventory has to go, go, go!"

Today's USA TODAY provides commentary on the rise of Web video, particularly premium material such as primetime television episodes. The embracing of Web delivery of primtetime television episodes has been a distinct success story to date in electronic delivery, certainly compared to the struggles that movie-based services have had. So far, the networks have reported no discernable cannibalization from their primetime audiences, and viewers are reacting well to the advertisements, showing a willingness to watch a few ads in exchange for free programming and indicating high retention rates for the ads and the brands. We recently recapped some of the major trends in broadband video in this blog.

Consumers are certainly flocking to the Web in greater numbers to consume video, as the USA TODAY article notes. Our recent Digital Media Habits II survey in Q3 2007 finds that 48% of broadband Internet users are watching Web video on at least a monthly basis. In a sign that these viewing experiences are going well beyond short ("snackable") clips, 20% indicate that they are downloading longer episodes (longer than ten minutes in length). The USA TODAY article indicates that consumers are flocking to the Web for video as a way to catch up on programming that they may have missed. We'd agree with that assessment. Despite the rise in popularity of the DVR, there are still only 27 million households with such a device today (that's about a quarter of U.S. households), and the DVR is only as capable as the person programming it to record. So, shows can fall through the crack, and the Web is offering them the opportunity to catch up and still allow the networks to do what they do best - attach advertising to them. I recently visited Hulu to catch up on a couple of episodes of My Name is Earl that I had missed.

The recent news from the technology industry indicates that we are only going to see expansion in the Web video space. Comcast Interactive Media, for example, recently launched Fancast.com, a site dedicated to helping consumers find and watch different types of video. The service also ties back into Comcast's core television business by allowing consumers (in later versions) to remotely manage their DVRs or set video-on-demand preferences. Also, The Wall Street Journal reported yesterday that HBO is testing a service called HBO Broadband that would let its subscribers watch the pay-cable network's shows on their computers - or download them to watch on the road.

The Web as a video delivery mechanism is only going to help today's service providers and content owners. Instead of being an "either-or" scenario, in which some argue that Web video leads to precipitice declines of television audiences, the near-term results indicate otherwise. And, it's just one more example of how the Web can provide a complement to today's existing television offerings by providing more programming at lower cost to suit the tastes of an obviously widely fragmented audience. Today's USA TODAY article indicates that the writer's strike, which has depleted much of the new programming available for the networks, will help to drive traffic to Web properties. I'd agree, but that's not necessarily a bad thing. We'd argue that today's television market is characterized by challenges not foreign to a car dealer - high inventory. If you consider the annual glut of new television programs that make their way to the television every fall, I don't care if you just quit your job, have five DVRs, and want to make a career of couch lounging and TV watching. The average viewer just doesn't have the energy to make a full commitment to that many television programs. As I tell my wife regularly, I just don't have the bandwidth to become emotionally invested beyond the 4-5 programs I may watch with regularity.

But, if the glut of new content slows to a trickle, what an opportunity for Hollywood to experiment on an even grander scale with their Web properties and electronic delivery! As I slowly catch up on those 4-5 programs that I usually watch, I'm finding an extra hour or two per week to look for other programs to fill the void. Take a show like Chuck or Pushing Daisies. They're not currently part of my emotional investment, but since the critics have responded favorably, I might give them a try on Hulu or via ABC.com. And, when the new season starts next fall (and if these shows survive the cut), they may be added to my DVR series manager.

It's certainly a time of both great opportunity and trepidation in this space. We continue to watch with interest.

Prisoner's Dilemma for Broadband Service Providers

Time Warner announced that it will start testing metered broadband service plans in order to curb the enthusiasm of heavy P2P users. Broadband users will have four choices: 5, 10, 20 or 40 Gigabytes. Such approach has been experimented in other countries such as China and South Korea, where P2P traffic accounts for a large percentage of broadband traffic. Metered plans are considered by most industry pundits as fair game: you pay for what you get, just like water and electricity. However, the question is whether consumers, who are used to unmetered bandwidth, will be happy and whether other service providers will embrace the model. It's an obvious prisoner's dilemma. If other broadband service providers decide to not follow, then BSPs who adopt such an approach might risk losing customer (maybe that's part of the intention-sending those bandwidth suckers to their competitors). The bigger fear is that if mass market consumers don't like this approach, they may flee to competitors in droves. Service providers also will need to deploy new technologies and billing systems.

One interesting thing is that although not publicized, some service providers have already been metering bandwidth usage. I cannot name the service providers but I understand if you use too many GBs per month, you might get a friendly letter from them, asking you to ungrade to a higher price tier or else.

At least Time Warner's approach hasn't generated the type of bad rap surrounding Comcast's bandwidth throttling approach, which has led to consumer lawsuits and bad publicity. Stay tuned for more information once Time Warner actually starts its experiment.

P2P is here to play. If you cannot beat them, why not join them. Collaboration between P2P technology companies such and BitTorrent and large service providers is much needed.

Rat Zapper: 1/Rats: 0

After a week of dazzling technology demonstrations at CES, consumer technology took a turn to the practical at the Scherf household yesterday. And, without calling The Geek Squad, it worked as advertised.

Last May, I wrote about a critter infestation in our attic. We took a four-prong approach to trying to rid ourselves of the problem.

First, I tried the standard spring rat traps, baited with peanut butter. I think that the peanut butter was stale. No luck there (and thank goodness, to be honest with you).

Next, we hired an exterminator, who provided us with a few poison bait stations. I'm not sure that they did the trick. My hope, of course, was that the rats would take the bait and conveniently expire on someone else's property. However, with no visual evidence to confirm any kills, I didn't know how successful that program was.

Third, a visit to Home Depot and the purchase of a $25 powerline sonic wave thingamajiggy promised to create an invisible force field that no rodent could penetrate. Just plug it into the wall and - presto - no more rodents. For awhile, this actually seemed to to the trick. We didn't hear the pitter-patter of little rat feet above our bedroom for a long time. Who knows, however, whether this device is deteriorating the performance of my powerline networking products, which I've mentioned using for my VUDU box and for a media adapter.

However, the good luck with the ultrasonic thingamajiggy changed this winter. With the arrival of cold weather, we could tell that our rodents were back. I heard it/them scurrying above us yesterday morning. The theory being bantered about here at the office is that - like a good bacterial infection that builds immunity to an antibiotic - the rats have already evolved natural defenses against the electromagnetic pulses coursing through the Romex. Or, I'm picturing the little dudes wearing tiny Bose noise-cancelling headphones and giggling at my futile attempt to mess with their central nervous systems.

So, it was time to activate the Rat Zapper, something I had put off in the hopes that my deterrence strategy would work. Also, I wasn't convinced that the Zapper could outsmart the rats. When I had activated earlier (using dog food as the recommended bait), nothing happened.
As with most things, the keys to success include 1) the right bait; and 2) a little patience. It turns out that it/they like cashews, and I baited the trap (non-activated) with the nuts the past few days, just to get it/them accustomed to a free meal. "Welcome rats! Don't be afraid of this little box with the food stashed at the end. It's perfectly harmless! C'mon in!"

Sure enough, this morning the Rat Tale indicator light was blinking - its creepy red eyes flashing like a UFO over Stephenville, TX (do a Google News search if you're unclear on the context). My first words to the wife were, "Oh no ... we've got something dead in the attic." I was still not convinced that the rats would go for it. Now, I had to man up and dispose of whatever was up there (I can't wait until my son has gerbils). Donning gloves, gripping a flashlight, and carrying a rat coffin (a grocery store bag), I ascended into the attic, muttering/praying under my breath, "Please don't be a squirrel, please don't be a squirrel...."

I'll spare you the gory details at this point other than to say that it was a rat (well-fed) and it was dead. Maybe there was just one rat up there; perhaps it invited some friends to stay for the winter. At any rate, the Rat Zapper is freshly baited and ready to strike again.

I gotta tell you, this ain't like that Ratatouille movie.

Comcast CES Keynote Highlights

Amongst Bill Gates' funny video, CES President Gary Shapiro's advocate for free trade, Intel Paul Otellini's showcase of mobile broadband communication across the continents, Comcast CEO Brian Roberts' keynote at CES on Jan. 8th stood out to be the most informative as it touched many facets of the telecom and entertainment businesses and also the hippest as it shows how Comcast is right on track to provide content to users whenever and wherever they go. This entry provides highlights of his 70-minute long presentation.

In our recent report U.S. Broadband Update 2007, we explained how telcos are making inroads and stealing away cablecos' premium customers by deep fiber deployments. We also noted in the report that cable MSOs are not sitting still. For example, Comcast's CAPEX increased 24% in 2007; a slew of new technologies are developed by CableLab to enable higher speeds and better services. From CES keynote, it is obvious that Comcast does have a lot on its plate and the plans are ambitious. They can be summed up in three themes: 1) ultra-fast broadband will be deployed before telcos' fiber get there; 2) content is not "king enough" unless customers can get it on their own terms. Comcast is making content accessible across TV, PC and CE devices; Tru2way, the new Fancast and VoD are all part of this large picture; 3) plenty of HD content will be provided soon.

It looks like cable industry has shifted to higher gears and 2008 will sure test its capability of retaining and attracting customers.

Keynote Highlights

1, Comcast's position as the No.1 multi-service provider in the US.

• Fact: It has nearly 25 million video customers, over 15 million of those taking digital video services. It is No.1 provider of residential high-speed Internet services with more than 13 million customers. It is the fourth largest, and fastest growing, residential phone company.

2, Open cable platform is re-branded Tru2way™.

• Benefits for consumers: when a consumer buys a device built with tru2way technology, they can bring it home, plug it in, and it will support ALL interactive two-way cable services. It's simple and easy. For many consumers, a tru2way device can mean no more cable set-top box.
• Benefits for manufacturers: tru2way means that cable now offers an open platform for innovation. It's Java-based with open APIs.
• Who are in the camp: Panasonic, Samsung, Intel, Cisco, LG, Microsoft, Motorola, TiVo, Sun Microsystems. Cable is working together with Microsoft and others in the PC industry to enable tru2way on future Windows Media Center PCs. This will let end users receive all cable services through their Media Center PCs without a separate set-top box.
  
• Panasonic has the first portable DVR/DVD combination available to consumers with tru2way capability, which is called AnyPlay portable DVR-DVD.

3, Video On Demand

• Comcast is now the largest provider of On Demand television programming in the world. Only digital cable customers get this service, which means 15 million of its 25 million cable homes can get the service now. And 90% of their On Demand content is available at no additional charge. Now they have 275 million views a month.
• In 2008-2009, they will increase the VoD offerings to 1,500 choices.
  
• By the end of 2008, they will begin to roll out a new system architecture that will enable them to offer 6,000 movies to its customers every month, half of which will be HD.
  

4, HD content

• They will put over 1,000 HD choices in virtually every Comcast HD home by the end of 2008.
• HD movie download will come to Fancast website soon.
  

5, Convergence

• Two initiatives. First, they will be offering Caller ID to the TV, so users can see who’s calling without reaching for the phone. Secondly, they will provide integrated voicemail + email messaging on the Web, a feature dubbed SmartZone™.

6, Fancast

• Now it makes personalized recommendations.
• The "find-it" feature takes users to downloads from stores like iTunes and Amazon, or rent DVDs from Netflix.
• Upcoming DVR feature in Fancast which can send instruction to the DVR to record video programs. Then users can watch it whenever they want, acting like the ultimate global remote control.
• It can also send e-mail reminders to those who don't have DVRs. And for users who are not Comcast cable customers, Comcast is planning to offer the remote DVR feature to other cable operators.

7, DOCSIS 3.0

• This technology can enable Comcast to deliver speeds of up to 100 Mbps over the next two years.
• By the end of 2008, DOCSIS 3.0 will be rolled out in front of millions of homes in Comcast service areas.
• They will maintain the edge in bandwidth as no competitors by then will have such speeds in front of so many homes.
  

U-verse's exploding batteries

I paused in my lunchtime perusal of today's Wall Street Journal at the mention that AT&T is having to replace 17,000 backup batteries located in cabinets housing equipment for its U-verse services. There have been two incidents of batteries exploding and another two where fires were ignited. Although most of the focus of the rollout of IPTV services has been on software, set-tops, network capability and scalability, and programming, there are definitely a host of other challenges to successfully deploying IPTV.

Apple TV's Upgrade

Just as I was writing about VUDU's service this week, Steve Jobs unveiled updates to the Apple TV service that include movie rentals. At $229, Apple TV is decidedly less expensive, and it offers more features in terms of access to iTunes music collections, photos, and some online content. There's an element of portability, too, as movies can be transferred to iPods, iPhones, and PCs. Now, wouldn't a major coup for Jobs be to cut deals with the major networks and deliver ad-supported (non-skippable) primetime television offerings through the Apple TV?

As my colleague John Barrett noted today in The San Jose Mercury News, assumptions that Apple TV's rental service marks the beginning of the end for DVD rental businesses are premature at best. Take the assumption, for example, that the early target market for a stand-alone set-top plus electronic movie rental service are the households that are watching lots of DVD rentals each month. As the average Netflix subscriber is viewing 7 movies a month, the economics of a roughly $20-per-month subscription outweigh an a la carte rental offering, even if the subscriber has to wait a day or two to receive the DVDs.

Apple TV also doesn't spell doom for your cable, satellite, or IPTV service. Network capacity continues to favor the incumbent video providers on their ability to send lots of high-definition content (both linear and on-demand) to the home, and I expect that we will see aggressive moves on major players in 2008 to experiment more broadly with models such as day-and-date release of certain movies (matching the DVD window). Hollywood hasn't bent over backwards in support of traditional VoD to date. However, if I'm a content producer, my best allies in the next few years could very well be the service providers who operate networks with large capacity, established security, who can pipe their content to a growing number of devices (such as mobile phones), who have the network infrastructure to ingest vast quantities of content and deliver it in a high-quality format, who have well-established billing practices, and whose advertising strategies grow more sophisticated.

For the incumbents, the opportunity also doesn't end with commercial content. I was impressed with demos that I saw at CES from Cisco that showed "hyper-syndication" of user-generated content into an operator's TV lineup. This way, YouTube or other content can be ingested into the operators' networks and provided as a stand-alone channel if desired. Game over? Not exactly. It's just another example of what makes this industry so interesting to follow.

TVs at the Heart of Connected CE Strategies

There is no question that marriages between consumer electronics devices and broadband content will be a key trend in 2008. Prior to the Consumer Electronics Show last week, we have seen several major announcements and developments made in this space:

• Take the January 3 announcement that Netflix and LG Electronics would work together to develop a set-top box to allow consumers to stream video and other content directly to their HDTVs. This would be ideal for the Netflix Instant Watching feature that comes as a standard feature with the DVD rental service. My only question about this is why develop a separate set-top box for this? I think we're quickly heading toward "black box overload" in the living room. Apple and VUDU are both pursuing this separate set-top route, but why not include the connectivity in something like a DVD player? If I'm a Netflix subscriber, I'm still going to rely on it to play those DVD rentals. Then, it could give me access to the 5,000 or so titles available electronically without the muss and fuss of that extra box.
• HP's MediaSmart TV provides access to CinemaNow content.
• Microsoft's Xbox LIVE Marketplace offers more than 3,500 hours of premium content, including high-definition video, from 35 studios and networks. On January 6, Microsoft announced that ABC (Disney) and MGM would be joining the lineup of content available throught the service.
• Sony's BRAVIA Internet Video Link service provides content from Yahoo!, AOL, Sports Illustrated, blip.tv, CondéNet’s Style.com, Men.Style.com, Epicurious and Concierge.com channels, and Sony Pictures’ Crackle, The Minisode Network and Inside Sony Pictures channels. At the 2008 CES, it was announced that CBS content would be available.

Although the emphasis for CE vendors has been on developing alternative video-on-demand strategies, it was interesting to hear about non-video services that are coming to networked televisions. Here are some of the announcements from last week:

• Panasonic announced products leveraging tru2way™ technology (formerly known as OCAP). The VIERA® HDTVs will be able to access interactive digital cable video services, including video on demand and interactive program guides without a set-top-box. The company also introduced true2way set-top and portable DVR. In addition, VIERA PZ850 televisions with VIERA CAST will allow access to Picasa Web Albums and YouTube video from Google.
• Sharp introduced AQUOS® Net that brings Internet content and remote diagnostics to the television set. AQUOS Net includes powerline networking, so it looks like it's bringing content from a PC to the television set instead of an Internet-based service, at least as of now. The remote diagnostics capability is intriguing. I've been saying for sometime that consumer electronics companies are facing a challenge in helping to provide support to their ever more complex devices, and that remote support with features such as automated diagnostics and troubleshooting will be critical (see my March 2007 blog titled A New Trend in Digital Home Customer Care: Enhanced “User Diagnostics”. Now, Sharp is bringing this capability to some its televisions. It'll be interesting to see if other manufacturers follow suit.
• Samsung demonstrated its InfoLink™ RSS service with applications from USA Today that include access to customized news, weather, and other information.

The marriage of content, services, and CE devices such as TVs and DVD players is in its formative stage, and it's a very fluid market right now. We certainly see the manufacturers taking an interest in the ability to sell services and applications above and beyond the set-top box, but it's unclear as of now as to how these services will be monetized. For online content services, we keep hearing about how ad-supported content will be the ticket, but nobody has really been specific in this area. We can certainly point to areas in which enhanced customer support (remote management, diagnostics, and troubleshooting, for example) can not only save on customer support costs, but also be a revenue generator in their own right. We would fully expect Sharp's lead to be followed by others. We'll be turning our attention to this space in several research reports in 2008, and we'll look forward to reporting some of the findings later in the year.

Is the Market Ready for Energy Management?

It’s no secret that few homes in the U.S. or, for that matter, anywhere in the world have electronic control systems. I have postulated that there are a number of paths on which controls can ride into the home: basic lighting, entertainment, security and …energy control systems. This last one, energy controls, was highlighted at this year’s CES by several firms …perhaps most energetically by Control4.

The company hosted a CES panel discussion comprised of Southern California Electric, California Public Utilities Commission, the Zigbee Alliance and Onteriors, an installing dealer focused on whole-home automation systems for green homes, to address the role home automation plays in enabling a green lifestyle. The conclusion drawn by the panelists is that utilities are prepared to invest in smart meter reading systems that can provide consumers with information about their energy consumption. In addition, these systems can enable time-of-day billing so utilities can provide consumers incentives to use power when it’s more plentiful …and less costly.


Sounds great, but haven’t we heard this before? What’s new this time?

We have heard it before, but there is a growing number of utilities and companies, e.g. Itron, that manufacture a large percentage of all electricity, gas and water meters used in the world behind the effort. IF the utilities do, in fact, finance the replacement of existing meters with those that can provide consumers information about their energy consumption and allow them some control over it, then I think energy management will become a major conduit for control systems into homes. I believe this is still a BIG “if,” but this is a development worth monitoring.

Why is this worth monitoring? Well, if you’re manufacturing controls or systems that need to be controlled, e.g. audio components, home theater systems, HVAC systems or home appliances, then these developments could affect you. Control4 plans to piggyback on these initiatives with its low-end, ZigBee-based control systems that the company believes can become mass-market products available at retail and easy enough for the do-it-yourselfer to install. Once in place, these systems can control any ZigBee-enabled device or system from home theaters to washing machines.

VUDU Box

VUDU has certainly been among the key products to watch, as the broadband video player has breathed new life into the market for delivering higher-quality Hollywood content electronically and putting it right at the TV set. I had a chance to meet with the VUDU folks at CES, and I was impressed at my first live demonstration of the service. It really was as easy as click-and-order.

They were nice enough to give me a unit to try out at home, so I spent part of the weekend getting it connected. One of the first challenges was figuring out how I was going to bridge the Ethernet connection on the back of the VUDU box with my broadband connection, since the set-top and the router aren't located in the same room. I attempted a bridge with a first-generation NETGEAR HomePlug adapter, but the VUDU box didn't pick up the signal. So, a trip to Best Buy (and $100+ later), I left with some UPA adapters from D-Link. This is the 200 Mbps solution that the folks at DS2 are touting. I tried the adapter with my laptop first to see if I could get a connection, and a bandwidth test from CNET indicated a speed north of 2 Mbps.

Connections were really easy after that. Just plug the adapter into the router and an available wall outlet and plug the other adapter into the outlet near the main entertainment center. I connected the VUDU box to the Ethernet cable, and ran through the rest of the set-up. The service is now live.

I'll be interested to try the service and see what it's like. My hope was that many of the DVD titles that are currently showing at Blockbuster would be available through VUDU (in rental form). This isn't the case with a movie such as Superbad. Although it's at Blockbuster, it's not available until January 18 from VUDU. I'm also going to be interested in seeing what a comparison between VUDU and the VoD offerings from my Verizon FiOS service are like. My gut tells me that most of what I'd want from VUDU will be available from Verizon either at the same time or shortly thereafter.

Blu-ray Game: Aliens vs. Predator vs. You

Many of my colleagues have written about their impressions on CES last week. For me, CES served two purposes: 1, to expand my horizon and see the cool, new gadgets and talk to knowledgeable people; 2, to test how many miles I can go in a day, as it takes both brain and brawn to be an analyst here at Parks. In preparation for the first purpose, I meticulously planned my schedules and read related industry articles. In preparation for the second, for the first time in my life, I attended a Pilates class in a local 24-Hour fitness club to prompt myself for the upcoming hardship. But it was almost embarrassing to find out that I was the only male in the class. Anyway, I found the CES show to be great. Many trends struck me during the three days such as gigantic flat-panel TVs and wireless HD content transmissions, but as gaming is more of my focus, I want to share some new things happening in the gaming industry.

It is not news anymore that games consoles such as XBox 360 and PS3 are able to provide on-demand videos and even serve as TV Set-Top Boxes. Now, new-generation DVD players are jumping into the role of game consoles too. Studios are able to combine the power of Blu-ray video with its interactive features to provide innovative gaming services. The first example I saw during the show was the Blu-ray version of the Aliens vs. Predator movie, with an add-on interactive game titled Alien vs. Predator vs. You. In order to play the game, players first have to upload a picture of theirs to create their avatars. Then, they can choose and wield weapons to fight the monsters in the movie. Players are awarded points based on how hard they hit the opponents. The whole experience was exciting at first but sort of awkward afterwards as it was not a real game per se but nothing more than a game interface slapped on the movie videos. Plus, players access the game through a remote control. The company providing technology behind the scenes is called RCDB (Related Content Database) based in San Francisco. So far, they are working with Panasonic and Fox on interactive initiatives. I talked to the staff from RCDB. They told me interactive games of this sort will be provided free of charge as extras to Blu-ray movies. As Blu-ray machines will be connected to the network, users can enter their profiles, get game updates and game statistics easily. In addition to that, game players can post comments and form game communities.

This exhibition shows that technically Blu-ray gaming is a viable gaming channel. But does this mean new-generation DVD gaming will be exploding anytime soon? I don't really think so, at least not in 2008. A few conditions have to be met before it goes mainstream. First, format war has to end to accelerate consumers' adoption of next-generation DVD. My colleague Chris Roden has written about this below and he thinks we may see the end of the tunnel in2008. Secondly, the design of new-generation DVD games has to improve. A game interface slapped on movie videos is far from optimal. A trivial casual game testing viewers' knowledge on the movie they just saw or the stars in the movie, anyone? Studios can set up a leader board or gaming center to reward those who score high on these mini-games. Or, if they are using PS3 to watch the Tomb Raider on their Blu-ray DVD, maybe they can download a free demo version of the Tomb Raider video game or purchase a full-blown version?

To end this entry, I found myself feeling more flexible just after one class of Pilates. So I found a good website on Pilates for anyone who might be interested. Maybe that's what we should add to our New Year's resolutions: work hard, play games hard, and don't forget to exercise. (Picture Courtesy of http://www.1up.com)

Remaining HD DVD Studios Abandoning Ship?

Signs of HD DVDs free fall continues. According to Variety, Universal will not renew its exclusive agreement to distribute HD DVD movies. It is also rumored that Paramount, which agreed to only distribute HD DVDs this summer, has an escape clause in their contract. A formal statement from Toshiba about the future of the format is expected in the next few weeks.

Digital Photo Frame a Bright Spot at CES08

The list of brands that join the digital photo frame market has grown much longer. At the just finished 2008 International Consumer Electronics Show (CES), more than 80 vendors, by my rough count, demonstrated their photo frame products, compared with fewer than 30 a year ago. Are vendors overzealous about this category? Concerns about oversupply are unfounded, at least for the near future, because for two years in a row, consumer demand has outstripped supply and vendors wished “we could have produced more.”

Although the true size of consumer demand is still unknown, vendors already felt pinched because of so many competing brands out there. Small vendors are even more worried as newer, bigger names like Samsung, HP, Viewsonic are likely to further erode their presence at retail and crush their already fragile component supply. Therefore the mantra at this CES for the digital photo frame is "differentiation." Although bigger frames (ranging from 19- to 32-inch) were announced, I was more intrigued by designs that mingle photo frame with other gifting ideas, making them look less like a consumer electronic device but more like a piece of “digital furniture.” For instance, Mustek is the first to make the frame a docking station for iPod. Smartparts introduced a model that can print pictures from the back panel. Even bolder is Audiovox’s move to make the photo frame attachable to a fridge in the kitchen. Audiovox no longer calls the product a photo frame, but a “family message center” because with it, a kid can leave a photo, voice or video message to his or her dad and mom.

I like the experimental spirit with the photo frame category during the show. It manifests how dynamic this market is and how versatile the product concept could be. But deviation from the core function is a risky proposition and could potentially cut the breadth of appeal among consumers. I hope all the innovative designs will be accompanied by a smart marketing campaign, so that a novel product idea can spur solid consumer demand. Time will tell, in six months or less.

The Blu-ray, HD DVD war is nearing an end

For me, the most intriguing story of CES 2008 was the Warner Home Video announcement to support Blu-ray exclusively. This decision will likely put an end to the format war that has been waging over the last two years between Blu-ray and HD DVD.

This development is quite a shocker given the momentum HD DVD had in late 2007. With player prices at $98 dollars at some stores and Paramount’s exclusive support, it seemed HD DVD was regaining some traction in 2007. However, Warner’s decision puts a quick end to any gains HD DVD had.

The question is why Warner decided to choose Blu-ray? Warner has been a supporter of both formats. At last CES, Warner announced plans to develop a “Total Hi Def” disc that would be format agnostic. However, as the delivery date continued to be pushed back, questions came up about the disc’s feasibility and cost. Therefore, I believe the reason behind Warner’s decision is twofold. One, by choosing Blu-ray exclusively, the title share tips drastically in Blu-ray’s favor with almost 70% market share. Two, the Blu-ray format has the best option to provide additional features such as interactivity and increased storage for years to come. It is also assumed that Warner received some financial support from the Blu-ray group to support the format going forward.

Interestingly, comments from Kevin Tsujihara, President, Warner Bros. Home Entertainment Group echoes what Parks Associates has been saying about consumers’ attitudes regarding the format war.

“A two-format landscape has led to consumer confusion and indifference toward high definition, which has kept the technology from reaching mass adoption and becoming the important revenue stream that it can be for the industry. Consumers have clearly chosen Blu-ray, and we believe that recognizing this preference is the right step in making this great home entertainment experience accessible to the widest possible audience.”
(Source: http://www.deadlinehollywooddaily.com/, Nikki Finke)

Who are the winners and losers of this decision? The biggest winner is Sony. They have made considerable investment in the Blu-ray format and that now seems to have paid off. The biggest loser is Toshiba. With the Blu-ray format now the dominant choice, this leading CE manufacturer will have to reevaluate their strategy and make considerable changes in providing next generation DVD players.

The other interesting note from CES didn’t have anything to do with technology. While waiting to get on the Monorail in Las Vegas with, what seemed like a million other people, I had a conversation with a security guard. He told me that the whole Las Vegas Convention Center is the equivalent of 61 football fields. Therefore, if you feel like you walked a lot at CES, you did!

Digital Home Tech Support Front and Center at CES

As much as the Consumer Electronics Show gets defined by the flashy announcements, the big keynotes, and the huge TVs (Panasonic's 150-inch monster), it's the behind-the-scenes stuff that is always intriguing to me. As we've followed the digital home tech support space over the last four years, I like watching the industry evolve and see how the major players such as service providers are coming around to the notion that delivering an enhanced level of customer support not only benefits them by reducing customer support costs, but paves the way for new service offerings that could include product and service recommendations.

Below, I'm highlighting a few of the announcements that caught my attention:

1. Cisco's purchase of WebEx last year has led to enhancements to its Linksys EasyLink Advisor (LELA) offerings. In addition to providing consumers a graphics-based map of their home networking configurations, a WebEx client allows for live technical support.
2. I was intrigued during a panel discussion at our CONNECTIONS™ Summit on Tuesday about how social networking tools can enhance the customer support experience. Rick Clancy, who is Senior Vice President of Corporate Communications for Sony Electronics, indicated that Sony's use of blogging tools has allowed the company to receive direct feedback from customers. He indicated during our panel How Social Media is Changing the Rules that it was quite likely to see more social networking tools implemented to enhance customer support.
3. Jungo Ltd. has another win for its OpenRG residential gateway middleware. Siemens Home and Office Communications announced that it would use the software in its Gigaset Gateways.
4. Thomson demonstrated its Advanced Cable Gateway that uses TR-069 for remote management.