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30/9/2003

The Emergence and Growth Of Entertainment-Centric Home Networks

By Kurt Scherf

Classifying Entertainment Networks

In the traditional sense, home entertainment networks have allowed consumers to route audio or video throughout the house to different receivers (primarily TVs and stereo receivers/speakers). In the past, such networks have typically required advanced entertainment controllers and the work of an installing dealer. The requirements for home entertainment networking have shifted, however, with the introduction of new technologies and players. Parks Associates classifies the emerging/digital entertainment networks in the following way:

-Point-to-Point: Allowing a television (or stereo) to link with a PC. These networks allow existing consumer electronics products to receive content from the Internet or a stored source (such as a computer's hard drive).

-Distributed (Multi-room): Enabling video and audio signals (digital and analog) to be transmitted from one device or appliance (such as a personal video recorder or DBS receiver) to a television or stereo in another part of the home.

-Cluster: Enabling entertainment products to 'announce' themselves to a network, digitally configure, and communicate via a high-speed connection so they can share processing and storage resources. This will enable a new generation of applications that coordinate the control of several consumer electronics devices simultaneously and simplify operation of devices by the consumer.

How Will Entertainment Networks Manifest Themselves?

The conventional wisdom regarding the configuration of an entertainment-centric network in the home recognizes two methods. The first method involves network 'kits' that will be purchased by consumers (either as separate components or in conjunction with another entertainment system, such as a direct-broadcast satellite, or DBS, system).

These kits will create point-to-point and distributed (multi-room) network configurations that will link home computers to consumer electronics devices. Using the storage capabilities on the home computer, consumers will be able to stream audio and video clips to other parts of the home and enjoy content away from often inadequate computer speakers and small monitors. There is growing evidence that the home computer will become a key component in the home network, as evidenced by Parks Associates' recent E-Home 2001 study, a survey of more than 700 consumers in U.S. households with Internet access. In this study, we found a large number of U.S. consumers who are already downloading and storing MP3 files on a home computer (Figures 1 and 2).

Figure 1

Figure 2

As home computers evolve to embrace more entertainment activity, it is a logical assumption that a growing number of consumers will seek connectivity solutions to enable networking between PCs and consumer electronics devices. These digital-to-analog networking solutions will be critical in bridging new digital services to existing legacy products (televisions and stereos, for example), and delivering revenue to a wide number of players (content providers, consumer electronics manufacturers, service providers such as cable companies, for example). After all, in a U.S. market that already has 300 million televisions in households, we cannot realistically expect consumers to discard their legacy devices for new (and quite expensive) digital platforms. At the same time efforts continue to bring new digital products to market, the industry also needs to address existing devices.

In Q4 2001, Parks Associates asked consumers in Internet households about their interest in home networking solutions that connect PCs to CE devices, and a significant number of them responded favorably (Figure 3). Furthermore, a large number of these consumers also appear ready to buy these networking solutions now - even at price points reaching $200 per kit.

Figure 3

The potential market for these digital-to-analog kits could be quite substantial. Our estimates indicate that more than 20 million devices will be connected via these networks by the end of 2006 (Figure 4).

Figure 4

The second way that home entertainment networks will find their way into homes involves embedding networking solutions in end-user products that are considered 'network-capable' (that is, they come with embedded home networking solutions such as 'new-wires.' This will create point-to-point, distributed (multi-room), and cluster network configurations.

Although there is much room for debate about what exactly is an network-capable entertainment product, Parks Associates believes that it is a non-PC device purchased by a consumer that leverages the Internet, processing power, and perhaps a level of hard drive storage to play video, stream audio (music), play games, and perform other similar functions. It is considered 'entertainment-centric' because this device has some kind of LAN connectivity - likely Ethernet or IEEE 1394 (FireWire). These devices may not necessarily be considered part of an entertainment network, because a true network would require two-way connectivity between two or more devices. So a receiver that picks up MP3 files from the Internet and connects to a set of speakers cannot be automatically considered as part of a cluster entertainment center (the speakers by themselves may not be capable of true two-way messaging back to the receiver).

In 1999, as Parks Associates was first projecting the markets for both PC and entertainment-centric networks, it was perceived that efforts such as HAVi (Home Audio-Video Interoperability) would quickly lead to deployment of a wide variety of 'mainstream' consumer electronic devices that would serve as hubs (or nodes) for an entertainment network. We believe that - at least for the near-term future (say, at least the next five years, for example) that many of the entertainment-centric products produced will be a new class of 'information appliances' devices that are network-capable, connect to the Internet, and can also connect to legacy devices such as DVD players, VCRs, stereo speakers, and televisions (Figure 5).

Figure 5

As consumer demand increases for these devices, strong growth is anticipated for network-capable entertainment devices. As Figure 6 indicates, more than 100 million consumer electronics products with embedded home networking solutions will be deployed in U.S. households by the end of 2006.

Figure 6

The market opportunities are clearly defined - entertainment is indeed a ripe frontier in which to move home networking from niche to mainstream. Of course, with any early market, there do exist challenges to address and hurdles to overcome. Chiefly among these are:

-No Clear Standard: To be clear, Parks Associates does not believe that the home network will consist of only one technology or standard. Different solutions will fit wide-reaching applications. However, we believe that one of the reasons that we have not seen widespread release of network-capable products at this point is that consumer electronics manufacturers are still investigating which networking solution(s) make sense. At the present time, there exist too many questions about reliability for one company to make a major gamble.

-Muddy Business Models: Clearly, the end goal of many of the players in consumer electronics is not to simply 'sell a box' and walk away from the customer. Sony Corp., among the major CE manufacturers, has stated quite clearly that it intends to sell both product and content to the end-user. However, at present, there exists very little compelling content for customers (beyond what they are already downloading for free), and the industry is struggling to find the right business model to support their home networking endeavors.

-Digital Rights Management: At present, this is one of the thorniest issues to resolve. Two large entities - the recording industry and Hollywood - have placed heavy pressure on Congress to enact legislation to require product developers in the computer and consumer electronics industry to develop solutions that prevent the unauthorized copying and sharing of protected content. In early 2002, two bills were introduced in both the House and the Senate to address this issue. Not surprisingly, the consumer electronics and computer industries have balked at these potential mandates, arguing that they would prevent innovation and seriously damage Silicon Valley's contribution to the national economy. At this point, the only thing that (most, if not all) participants can agree on is that something needs to be done. If the content producers and hardware/software developers cannot come to some sort of agreement, however, Congress will act. In the end, this may not be to the ultimate benefit of the end-user.

Kurt Scherf is Vice President of Research, Parks Associates, a Dallas-based market research firm and consultancy that specialises in emerging residential and SOHO technology solutions.

www.parksassociates.com

(c) August 2002 Parks Associates