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Article Teaser: We don't think so, but it is in for the greatest restructuring in its history. This year, the fog thinned just enough to see how the Consumer Electronics industry is likely to turn out. By our estimation, that change is likely to be unprecedented in magnitude - and will primarily impact that two thirds if the industry that is not appliances, that is, hitting home entertainment electronics. The change will alter the nature of the product set, re-orient the behavior of the consumer, and perhaps most strikingly, completely reshape the competitive landscape.

Keep reading below...

The End Of The Consumer Electronics Industry As We Know It?

Copyright (c) 2006-2017
(See This Article in its Original Format.)

We don't think so, but it is in for the greatest restructuring in its history. This year, the fog thinned just enough to see how the Consumer Electronics industry is likely to turn out. By our estimation, that change is likely to be unprecedented in magnitude - and will primarily impact that two thirds if the industry that is not appliances, that is, hitting home entertainment electronics. The change will alter the nature of the product set, re-orient the behavior of the consumer, and perhaps most strikingly, completely reshape the competitive landscape.

We estimate that little will be recognizable within 10 years. In fact, the main battles have yet to be fought and won, though it is clear that many players have been preparing for the fight for years.

In Summary, We Predict:

1. There will be a dramatic consolidation in CE entertainment devices within 5 years.

Today's stack of CE entertainment equipment (CD and DVD players, VCRs, amplifiers, tuners, digital video recorders, etc.) will be replaced by Media Center devices, which we expect will develop in two separate parts (below).

2. The new 'Media Center' will evolve in two distinct parts / roles:

a. Media Center: Content Management. This role will be dominated by PCs (including today's home use PC, and others such as Intel's ePC and the Mac), which will be capturing, editing and storing content.

b. Media Center: Content Access. This device is under development now (by cable companies, game console vendors, CE device vendors, and 'thin' PC vendors:

i. The Cable companies will come to dominate/control the 'Media Center: Access' space

ii. Competition in 'Media Center: Access' devices will be driven by UI software functionality


3. There will be substantial consolidation and change in the CE competitor lineup within 10 years.

a. CE competitors will become increasingly weaker. Today's thin CE margins will be compounded by reducing unit sales (due to device consolidation in 1. above), and reducing prices (accelerating as in the PC industry). The power of cable companies (2.b.i., above) will flame this decline.

b. PC companies will merge with CE companies. To acquire consumer brand and channel strength.


---

1. CE Entertainment Devices Will Consolidate


Typical in homes around the world today, is a stack of component-based entertainment equipment; including CD and DVD players, VCRs, amplifiers, tuners, digital video recorders, and many other devices. That stack of equipment is likely to be replaced by Media Center equipment - thanks to the ongoing and rapid adoption of digital content, a shift we call "dEntertainment."

Three factors will drive the adoption of the Media Center approach; 1) dramatic savings to the consumer in purchasing less equipment, 2) substantially increased functionality - available only from the Media Center, and 3) improved flexibility in aesthetics that comes with eliminating boxes of equipment. Figure 1 summarizes the home entertainment equipment shift and the drivers for it.


Reduced Overall Equipment COST For The Consumer

Once music, video and other content is in a digital form, the hardware needed to input it, manipulate it, store it, and play it back (most of which is known as digital processing circuitry) is largely the same. As a result there are substantive savings in utilizing only one set of hardware (i.e. device) to conduct all the content processing needed.

However, there are components that the Media Center needs in addition to digital processing circuitry. In terms of hardware components, these are primarily TV and other tuners, disk readers/writers, and such like. And to manipulate the data, and properly process it, the Media Center also needs a dedicated operating system. Together, these additional hardware and software components are likely make the Media Center a little more expensive than one of today's consumer electronics devices, though we believe that the price is unlikely to settle at more than double that of one of today's consumer electronics devices.


Significantly Enhanced FUNCTIONALITY

Much of the promise of having content in digital form has always been in the ability to manipulate it. In today's terms, such manipulation includes using TV guide information to record complex programming (such as a series of shows), and sharing content among several uses simultaneously (for example, within the home). As time proceeds, many new forms of content manipulation will emerge, and only a Media Center will be in a position to deliver it, since only it - by definition - has the integrated functionality of several of today's CE devices.

Furthermore, content distribution is set to make a dramatic shift to online distribution mechanisms, and as a result content will reside either in the entertainment device, or within its easy access. Content of all types will be stored on hard drives, and will be available for use without the consumer needing to find and launch physical media such as CDs or DVDs. In fact, improvements in the management of stored content will extend to higher quality sorting, indexing and searching in the dEntertainment paradigm. In the long term, as bandwidth improves, we believe that content storage will shift to the Internet entirely (this is many years off; when the internet 'pipe' is broad enough).

Finally, the quality of digital content is high, and does not deteriorate when transferred between digital circuits. This is in stark contrast with the analog CE equipment in most of today's homes, where the stack of multiple CE devices use lower quality formats, and content is transferred among devices through analog connections - notorious for quality degradation. The Media Center eliminates most of these quality issues (though it has some of its own).


Enhanced Flexibility In Equipment AESTHETICS

In terms of aesthetics, the simple consolidation in the number of CE devices will allow consumers to devote considerably less space to their entertainment equipment. In addition, the complexity and number of wiring connections will be significantly limited, as the Media Center will be internally integrated (shuffling content around internally).

Also, given the nature of the Media Center, controls will be displayed on a screen, and will be menu-driven. Such a configuration removes the need to have the device in the same room as the user, and is likely to be located remotely. Notably, there is a case for the Media Center device being built into display device (such as a plasma/LCD screen); an approach likely to be favored by today's non-Consumer Electronics competitors that are trying to break into the Consumer Electronics market.


2. The Mainstream Media Center Will Evolve In Two Separate Parts

Today, the contending devices for the Media Center appear to be fighting over a 'one-box' solution. Broadly, there are two camps in today's contest:

The PC: The only viable PC solution available today is driven by Windows XP Media Center Edition (or "MCE")

The Set-Top-Box (or "STB"): There are three primary sources of STBs today

- Cable companies

- Game console vendors

- CE device vendors



The first of Microsoft's MCE solution for the PC was launched by HP in 2002. The device is basically a high-performance PC (with tuner and other media-related PCI cards) sporting a version of Windows XP that is loaded with an extensive set of media drivers and a "10 foot" graphical user interface - suitable for controlling media on a screen that is 10 feet away, a distance that is typical in today's living room.

On the other hand, STBs have to date been dedicated to specific point-solutions in the home; such as cable/satellite

signal decoders, gaming consoles, or one of the many player/recorder roles today's entertainment solution.

When compared, however, the two types of device have significant weaknesses when they are considered as a 'one-box' Media Center solution. table 1 summarizes the relative strengths of each proposition.

It is clear that the strengths and weaknesses of each offering are complementary. The PC is very capable at managing, manipulating, playing and storing content. In addition, over many years a vast array of sophisticated applications has been created to edit, arrange, and access content of any type on a PC. Such capabilities are lacking in STBs, mostly as a result of their point-solution heritage; to create software from scratch, with comparable capabilities to those for the PC, will be prohibitively costly; STBs simply cannot compete here in the near term.

Conversely, PCs are notorious for crashing, and for being generally bothersome to deal with - making them unwelcome in the living room. STBs, however, have delivered years of easy-to-use, reliable service in the living room - and have the respect of consumers as entertainment vehicles.

With both approaches having their own merits, they appeared set to embark on a long and drawn out battle.

That was until the beginning of 2004, when Bill Gates announced that Microsoft would launch Windows XP.

MCE "Extender" in the autumn of 2004. In this one move, Gates appears to have ceded the PCs bid for the position as the widely accepted 'one-box' solution, and opened the door for splitting the Media Center's function in two: The PC taking the role as content manager, and STBs taking the role as the user's access point - the User Interface (UI). Figure 2 depicts the roles each approach will adopt, and the likely configuration future of Media Center equipment.

The "Extender" technology announced by Gates in the Consumer Electronics Show in Las Vegas in January enables both ends of the reconfigured Media Center: 1) It makes the content residing on the MCE PCs readily available to, and somewhat manipuleable by, STBs; and 2) it provides STBs with the drivers and other technology needed to work with content on MCE PCs.


MCE-Enabled PCs Will Dominate The 'Content Management' Media Center Space

The two strongest competitors to MCE-enabled PCs as Content Management Media Centers come from, a) the Mac; and b) the new entertainment PC recently announced by Intel (known as the 'ePC'). While both have some considerable strengths, they are significantly hamstrung by the PCs widespread installed base.

Today, most homes already have at least one PC. They are there as they are needed for other, non-entertainment, purposes (for which the Mac and the ePC have no intention to substitute). Consumers are unlikely to want to add a new device when an upgraded PC could fill the role.

Furthermore, many consumers have invested significantly in entertainment content and applications based on the PC platform, and they are likely to be unwilling to want to port that content over to a new platform.

Finally, the PC boasts an unparalleled array of content management and manipulation applications. While the Mac has the potential to offer a viable alternative, the ePC cannot.


The Cable Company's Solution Will Dominate/Control The 'Content Access' Media Center Space

Four groups of device types are in a position to compete for the content access role; cable/satellite STBs, game console STBs, CE devices, and some form of PC (see Figure 3).

A strategic assessment suggests that the cable offering has the advantage in terms of widest addressable market, while others will have specific strongholds. The fate of the CE players is largely dependent on their ability to weather the competitive storm in an industry that has historically been their exclusive territory.


The Cable Box Appears The Most Advantaged Contender

The cable companies are busy creating new STB solutions that have all the hallmarks of a viable Media Center Access device. Comcast appears to have the most advanced proposition, working with Samsung to develop the device itself, and Ucentric to develop the operating system / user interface.

This offering is likely to have considerable power in the market. The primary reason for this is the sheer level of penetration that cable enjoys in the US market today, and the fact that all those consumers that want to access the cable system do so under the direct control of the system operator, with the system operator's approved hardware / STB. The proprietary technology extends beyond simply controlling access to cable content, and is likely to deliver functionality to cable services that will only be available to cable STB owners.

Another, often under-rated, driver for the likely success of the cable solution is in the army of locally-based installation engineers. As the Media Center enters the mainstream, it runs the risk of slow adoption due to poor consumer education. While the screen-based user interface can be designed to reduce the consumer education needed in day-to-day use, the installation itself poses challenges. Connecting to the cable system, to the computer and home network, and configuring to consumer-specific content and needs are tasks that cable company local installation engineers are trained for - putting them at an advantage.

It is worth noting that the cable operators are highly motivated to maximize adoption for their solution; they are on the brink of sitting at the choke point of information into many homes. This position offers vast additional revenues from video-on-demand (VOD) and a range of other services that currently support whole industries. Given the near-monopoly cable operators have in local wired broadband (DSL has reached its limit; see BIA paper #428), they are in a position to extract substantial premiums.

Though, to make the approach work, cable operators will be forced to work with others to develop the solution itself.


Game Console Vendors Are Going To Put Up A Fight, Leveraging Some Natural Market Strongholds

The gaming console vendors also have an installed base of loyal users, and are able to exert some control through their own proprietary technologies in game rendering. However, the installed base of game consoles is considerably smaller than that for cable STBs, and the actual loyalty of users to specific vendors is questionable, given the dramatic shift to Sony's PlayStation and away from Nintendo's GameCube in the 1990s, and the expected shift to Microsoft's xBox that is likely to start in 2005 (see BIA paper #447).

We estimate that the game console-based STB is likely to have some success, though it will be centered around the Den, where the console is located today, and will find demand only in those homes where there is a strong demand for game consoles. While this is not likely to be a small market, it is also not likely to rival the wide acceptance driven by the cable box.

It must be said that Microsoft has made a good play with its xBox, and it is unlikely to accept being relegated to an also-ran position in the re-configured CE industry. Of course, Microsoft entered the game console market with the specific intention of gaining a presence in the living room. Strategically, it is now in the most advantaged position of the three key players; it will implement "Extender" technologies in its STB first (Sony and Nintendo are likely to resist for quite a while). The upgraded xBox is set for launch in 2005 - beating the next PlayStation to the market by one whole year; Sony used this same technique to beat out Nintendo's leadership in the 90s. In addition, Microsoft has been working hard to get content written for the next xBox, publishing easy-to-use programming tools, upgrading its hardware early in the 5-year cycle, and leading the market with graphics and other capabilities.

Sony has made a play for a non-PC Media Center late in 2003, launching the PSX. This STB included a hard drive, DVD player and other capabilities, though its launch was limited to Japan, and mired with production delays, functionality that fell short of promised specifications and a $800 price tag (comparable to the price for three or so CE devices). The PSX is expected to be launched in the US in the autumn of 2004, though it is not expected to be "Extender"-enabled, and is unlikely to be a viable contender for the Media Center Access device as a result.


CE Device Contenders Will Depend On Their Brands To Carve Out A Market Position

The CE players are increasingly recognizing the shift to ubiquitous digital content, and the likelihood of online content distribution. This recognition is manifesting itself in a series of recent launches of multi-function CE devices.

However, none of the CE players have yet shown much sign of delivering a Media Center proposition that will be a serious contender, able to compete with features such as online music and video downloading, home video management etc..

We expect that the CE players will be very slow to develop a strong Media Center offering, and will be completely distracted as the years pass, due to substantially declining revenues from entertainment equipment (resulting from declining unit sales and declining ASPs; see Section 3).


PC Players Will Make A Play, With Some (Limited) Success

There are three potential PC-based offerings for the Media Center Access device.

The MCE PC is one solution; where Microsoft is using "Extender" to allow more than one room to be served by the same PC. While this is a viable potential offering, it is unlikely to significantly alter the existing disadvantaged position facing the PC - specifically, its reputation for very poor stability, slow startups, and excessive complexity.

Apple's Mac represents another potential solution, though Apple has actually indicated that it is not interested in a Media Center proposition in the home. With that said, it surprised the market with its iTunes move in 2003, and has a reputation for holding back on its strategic moves - apparently relishing the impact of surprise.

Finally, there is Intel's entertainment PC chip set (the "ePC"). This new device is targeted at delivering entertainment, with many other elements pared down; it is expected to be able to run a new pared down Windows, as well as Linux. In fact, the Linux version is expected to be very quick to startup, rather like the CE devices of today. There is too little known about the ePC to get an accurate assessment on its likely path forward.


Table 2 summarizes the relative positioning of the four groups of contender.

Media Center Competition Will Be Largely Driven By Operating System / User Interface Capabilities

Competition in today's CE device market is largely driven by brand/reputation, features, styling and price. Going forward, however, we believe the factors for competition will be different for the Media Center, as a result of the radical alteration in the product on offer (to a the more computer-oriented / digital-based Media Center) and the accompanying entrance of many new players to the market.

We expect the net impact will be reductions in the power of brand and the impact of styling (the Media Center device may even be located remotely). In contrast, however, functionality will become king.

And greatly widened functionality is one of the key deliverables of Media Centers. Naturally, in a digital device, the functionality is completely dependent on the software, and offerings will compete largely based on the functionality provided by the device's resident software.

How this competition will manifest itself is not yet clear. One scenario has the Media Center Access device utilizing proprietary UI systems running on Linux (assuming they will work with MCE "Extender"). In this scenario the hardware is likely to become commoditized rapidly, and competition will center on a few UI system vendors (e.g. Ucentric).

Another model has the Media Center Access device becoming loaded with considerable proprietary hardware-based signal processing chips and the like. In this model, both hardware and software become a factor in product differentiation, and software portability becomes a little more difficult for UI system vendors. With that said, the UI software is likely to remain a key factor in the consumer's purchase decision.


3. The CE Competitive Landscape Will Be Unrecognizable In 10 Years

CE Competitors Will Become Weaker

Existing CE players make almost no profit from the market as it is. Return on Sales (RoS) is typically in the low single digits: For example, as of the end of 2003, Sony - the giant of the industry - had an RoS of 1%, as did Toshiba; Philips returned 2%; and Matsushita (Panasonic) delivered a relatively whopping 5%.

The worst of the news is yet to come, however. The entrance of PC vendors and others into Consumer Electronics delivers an unparalleled blow for the established CE players - effectively doubling the number of players chasing consumer spending (see Table 3), and all strategically focusing on share leadership.

Notably, PC vendors are much more focused on price, and are much more experienced at squeezing out cost. Such a re-charged focus on price competition will combine with the expected decline in CE device types (as the consumer adopts the multi-functioned Media Center devices); it is not unreasonable to expect that overall revenues will be significantly reduced in the years to come.

In short, twice as many players will be chasing a much lower dollar rate of spend, in a market that is more focused on price competition than ever before. Established CE players are facing reduced revenues at a minimum, and, without substantive change in the way they operate, they must expect that RoS will dive deeply into the red as the transition unfolds in the next five to ten years.


PC Companies Will Merge With CE Companies

This situation is not without precedent, and the typical outcome is consolidation among the players. The two primary industries that are merging are PCs and CE entertainment equipment; each of which has critical strengths to offer the other. In fact, the strengths and weaknesses are so complementary, that we should expect a number of unions created between the two, see Table 4.

The CE players basically offer good market-oriented capabilities; brand strength, good consumer entertainment understanding, and an established channels facility. Conversely, the PC/computer oriented players offer technology and operational strengths, such as familiarity with digital processing, software and semiconductors, and they have extensive (hard-earned) experience with cost based competition and rapid product cycles.

The first players to start the matching process will undoubtedly have the advantage; since they will have the pick of the bunch, and will be able to capitalize on the fruits soonest. Naturally, there will be egos and cultures to get over, as well as other strengths to consider, such as global geographic strengths.

For example, the Asian-based players will have an aversion to mergers of most kinds. Also, the industry leaders, such as Sony - perhaps even Dell - will consider mergers as too risky to their existing business models, and may reject such moves until it becomes too late. Our favorite, though, is the potential Philips-HP deal; where the cultures seem to have the best match, the product and geographic coverage fits well together, and the relative strengths and weaknesses of each is so pronounced that both have a lot to gain. HP will be the buyer - and may well wait until the price is right.




About The Author: Shop Amazon - Top Gift Ideas
Mr. Jones is a management consultant with extensive experience analyzing markets and crafting strategies that deliver superior financial returns. He began his career as an engineer with Thomson Consumer Electronics. Subsequently, turning to consulting, he joined PricewaterhouseCoopers, where he was a Partner in the strategy consulting practice, and he is now at Business Intelligence Associates - a consultancy he co-founded. He earned an engineering BSc from City University, London, and an MBA from University of Chicago. http://www.biassociates.com

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Written by: Howard Richman | Distributed: 2007-11-07 | Word Count: 999 | Page Views: 142064 | Votes: 123 | Rating: 3.24
Have you ever wanted to permanently backup your answering machine messages or store your voicemail messages to your computer before they are auto-erased? Learn how to permanently save those cute messages from your children or important business messages.

Diesel or Gas - Loud Smoking Dinosaur or Fuel Gulping Monster
Written by: Simon Byholm | Distributed: 2007-06-27 | Word Count: 852 | Page Views: 2987 | Votes: 11 | Rating: 3.09
In this article I'm going to discuss the properties of the diesel and gas engines, and compare them to each other. I'm specifically referring to their use in automobiles.

Analysis of Candlepower, Lumens, LUX and Foot Candles
Written by: Magnalight | Distributed: 2008-02-20 | Word Count: 774 | Page Views: 6370 | Votes: 13 | Rating: 3.08
LUX represents the amount of useful light that enables you to see something at that distance. For example, if I took a book and walked out 100 feet, how much light would I have to read by?

An Automobile Driver? Several Benefits Why It Pays You Dearly, Any Way, For You To Have A Good Fuel Economy
Written by: Benji O. Anosike | Distributed: 2008-03-31 | Word Count: 1757 | Page Views: 3112 | Votes: 7 | Rating: 3.00
Following below, are some of the most significant reasons and benefits, aside from simply the personal economic or financial benefit accruing to the individual motorist, why it will still pay you, any way, to have a life of good fuel economy any way, regardless.

The Future Of Inkjet Cartridges - Could it be Without Cartridges?
Written by: Rich Martin | Distributed: 2007-04-24 | Word Count: 434 | Page Views: 2819 | Votes: 8 | Rating: 2.88
I do not know about you, but I do remember the days of the first Polaroid camera that would develop a black and white or color picture in just one minute. Wow, at that time, it was great. You did not have to wait days to receive your pictures. I know I am dating myself, but there is a reason why I am telling you this story. There could be a similar story brewing for the future of inkjet cartridges.

Do-It-Yourself Automotive Axle Assembly Repair Tips and Tricks
Written by: Quinton Becker | Distributed: 2010-05-11 | Word Count: 619 | Page Views: 5232 | Votes: 15 | Rating: 2.80
Replacing an axle assembly is not as difficult as you may think. For front-wheel drive cars, and for some rear-wheel drive cars, this can be a do-it-yourself job. You will want to review the repair manual of your vehicle to decide, based on your own mechanical skill, whether you feel comfortable tackling this project yourself.

The Importance of Proper Sanitization in the Homebrewing Process
Written by: Mark Thurnau | Distributed: 2006-08-24 | Word Count: 628 | Page Views: 2914 | Votes: 9 | Rating: 2.78
Sanitization is perhaps the most vital step that must be consistently undertaken during the entire process of homebrewing process, yet it is perhaps the one aspect of homebrewing that is most often rushed or overlooked. Problems with sanitization are the number one reason why homebrew beers fail.

7 Good Reasons For Buying A Laptop Online
Written by: Titus Hoskins | Distributed: 2008-03-31 | Word Count: 885 | Page Views: 3830 | Votes: 6 | Rating: 2.67
Ever wonder why more and more people are purchasing their laptops online? Well, now you can discover what they already know... here are 7 good reasons to buy your laptop online.

Why VHS is Disappearing
Written by: Jerry Tarrer | Distributed: 2007-02-22 | Word Count: 692 | Page Views: 3467 | Votes: 7 | Rating: 2.43
VHS is being replaced by newer technology. The film Studios are no longer releasing movies on VHS film, DVD's are much easier and cheaper to make, more durable, last years longer, and are much cheaper to mail. Basic DVD players can be purchased for $50.00 and under, making them less expensive than the VHS players. VHS collectors should fast-forward towards reformatting their piles of favorite movies soon before they become white elephants with a short shelf-life.












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