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Market Data: Connected Home Entertainment (2/5/2012)

By Kurt Scherf, Parks Associates

The rise of Internet-connected devices is arguably the most significant step forward in content management and delivery since the commoditisation of broadband. Connectivity has entered not just retail-orientated products such as game consoles, TVs, and Blu-ray players, but also set-top boxes (STBs) from pay-TV operators and hybrid terrestrial services.

Today, approximately 17% of all U.S. broadband households own at least one Internet-connected device, with game consoles accounting for the lion's share of these products. Also, these devices are beginning to show their potential in household entertainment. Approximately 30% of U.S. households with an Internet-connected CE device (about 5% of all U.S. broadband households) used it to rent at least one movie in the past month.

Smart TVS

The 2011 Consumer Electronics Show (CES) ushered in the fourth generation of smart TVs. At this stage, companies have shifted their focus from hardware to services, i.e., to bringing the online experience to connected TV devices. The main player in this space has been Yahoo!, which entered early with its Connected TV applications. Since then, several alternatives from smart TV manufacturers and third-party software providers have emerged in hope of grabbing a share in this early market.

Smart TV displays are high-definition televisions with embedded technology to allow them to connect to online content sources.

Most approaches incorporate a long-term interactive advertising model, but the immediate goal is to reach as many platforms as possible. Apps and content developers all face the same challenges with the widespread, and growing, fragmentation in the market, particularly as consumers acquire more devices, requiring multiplatform approaches that tie together the TV, the smartphone, the tablet, and the computer.

To supplement 'over-the-top' Internet content, major manufacturers have forged partnerships to enable video-related services on their systems. In France, LG Electronics has partnered with France Telecom to offer the Orange portal (including information, news, live radio, and video-related content) on LG's connected TVs. TeliaSonera has partnered with Philips to provide VoD distribution services to Philips' Net TV. Owners of Samsung's connected TVs and Blu-ray players can directly stream Hulu Plus content via the Hulu Plus app. TV Everywhere solution providers, including thePlatform and ExtendMedia, are moving their content management services straight to connected CE devices.

Expect even more and varied partnerships between manufacturers and content providers, including newspapers and magazine publishers, social-networking sites, music and gaming portals, online commerce sites, and user-generated video sites.

PC-to-TV Connections

Even before Internet-connected consumer electronics were widely available, consumers were taking a do-it-yourself approach in bringing an Internet experience to the television screen. Wired connections, such as HDMI and component/composite cables, are common ways to link home computers to a high-definition television display, but wireless adapters are being used in about 20% of connections.

Connected Blu-ray Players

Connected Blu-ray players offer consumers features similar to those found on smart TVs but at a lower price. The market opportunity for these devices is significant. After a slow start, worldwide sales hit eight million units in 2009, and Parks Associates forecasts annual sales will exceed 140 million units by 2015.

By Q2 2011, 12% of U.S. broadband households were already using PC-TV connections to watch online video on a TV.

Connected Game Consoles

Next-generation game consoles such as Microsoft's Xbox 360(tm), Nintendo's Wii(tm), and Sony's PlayStation(r)3 represent a new category of device capable of acting as media servers or adapters. Given their prominent location in the household's entertainment centre, consoles are ideally positioned as bridges between online media and television access. More than 40% of U.S. broadband households with Internet-connected game consoles use them for VoD on at least a monthly basis.

The CE industry is taking its cues from the experience of connected console developers. Expect to see deployments of feature-specific apps on a growing number of smart televisions and other products, as manufacturers open their developer communities to a growing number of content creators. Of course, as the hack of the Sony PlayStation Network demonstrated, companies need to account for user security, particularly as the migration from personally owned media to cloud distribution continues.

Percentage of U.S. households with Internet-connected game consoles.

Digital Video Players

Digital video players broadly divide into two categories:

• Devices such as Apple TV and the Roku Video Player, which provide a premium VoD service.
• Others that link to broad online video content such as Blip.tv, Break.com, and Dailymotion, among others.

Digital video players face significant hurdles in the U.S. To be successful, these devices have to define a unique role, either as a complement to existing subscriptions, an extension to consumer storage products, or an embedded solution for a set-top box. The latter will be a prominent case in Europe, given the emphasis on hybrid set-top boxes that incorporate the functions of terrestrial broadcast television reception and online video access.

The Humax HDR-FOX T2 is an example of an STB that incorporates terrestrial broadcast television reception and online video access.

3DTV

Sales of 3DTVs did not match the initial excitement, but when put in perspective, 3DTV experienced a better consumer reception than HDTV. It was not until 2002 that more than one million HDTVs were sold in the U.S. in total.

Sales of 3D TVs reached an estimated 1.6 million units in North America and 3.7 million units worldwide in 2010, the technology's first year. Going forward, the recent introduction of 3D sets with passive instead of active glasses will lower the cost of ownership and incentivise purchasing.

Worldwide 3DTV unit sales (in millions).

In essence, 3D is here to stay. The cost differential of implementing stereoscopy in consumer electronics is relatively low and will get closer to zero in the coming years as development costs are amortized, meaning manufacturers will start to include it as a standard feature in their devices. In 2014, 80% of TV sets sold in North America will be 3D-capable. While 3D may not increase the size of the flat-screen TV market, it will certainly hold a solid share of flat-panel TVs sold.

Kurt Scherf is Vice President and Principal Analyst for Parks Associates. Parks Associates is an international market research and consulting company specialising in emerging consumer technology products and services. Each year, Parks Associates hosts executive thought leadership conferences CONNECTIONS, CONNECTIONS Europe, and Smart Energy Summit.

www.parksassociates.com