Will AppleTV be a dud?

Will the greatly hyped AppleTV be a dud? According to Brent Schendler at Fortune, AppleTV is a dud. They even included alternative uses for AppleTV including a Sushi Platter:

Some complaints he makes include the low quality of videos. "it requires an HDTV, but the video you download is so low-res that it looks as fuzzy as plain old broadcast TV" -- Brent Schendler.

Another is that there is no way to order a movie directly from the iTunes store via your TV. You have to manually download it to your computer first.

On the positive side, YouTube and Apple made an agreement to broadcast YouTube through the Apple TV interface. Together with Apple's iTune monopoly which can be broadcast to the living room TV, Apple may have a chance to succeed with the concept of AppleTV.

But at this time, I don't think the product and technology is fully mature and widespread adoption may take some time. There's a user who says that he's been watching YouTube Videos on his Nintendo Wii for some time. There's another user on a bulletin board echo the complaints of the bad quality of the videos. Another user wishes that Tivo functionality can be integrated with AppleTV.

Granted, we are still at the beginning of the Digital Living Room Revolution. While AppleTV's product may not be the "It" product, if I were to handicap all the players in the Digital Living Room, I'd give Apple a good chance of having a good market share in the Digital Living Room. But not with the current AppleTV product.

Apple (AAPL)
Google (GOOG, owner of YouTube)
Nintendo (NTDOY)

New Advertising Models in the Digital Living Room

In a previous post, I mentioned that one of the losers of the Digital Living Room is the Traditional Advertisers. With DVRs and Tivos (TIVO), it becomes very easy to fast forward the commercials.

According to Business 2.0, NextMedium, a startup company, "automates and standardizes the process of product placement in TV shows, movies, and videogames." You can't fast forward the advertisement because the actors are using the product or mentioning it on the actual show. Remember the scene in the new War of the Worlds where Dakota Fanning explains Tivo to Tom Cruise?

Losers of the Digital Living Room Revolution

There will be losers in the Digital Living Room Revolution.

1. LOSER: DVD retailers (even HD-DVD or Blu-Ray?):

REASON: Video on Demand may become so prevalent, people will choose to download movies instead of drive to their neighborhood Blockbuster, or even to their mailbox to pick up movies from Netflix. Even DVR maker Tivo (NASDAQ: TIVO) has a current system with Amazon to download shows directly to the Tivo box.

TIME FRAME: I think Netflix (NFLX) is still viable at this time, and maybe Netflix may still be viable because they can mail HD-DVD and BluRay DVDs. Video on Demand is still in the innovation and early growth stages and will need much greater adoption before DVDs become obsolete.

2. LOSER: Gaming Retailers such as Gamestop (GME)

REASON: Eventually, there will be Gaming on Demand where customers can directly download Games without having to go to a retailer. Companies might even come up with Gaming Servers where customers can log on to the site, and play their game at home.

TIME FRAME: It will be a while before Gaming on Demand becomes big enough to be a big threat to Gaming Retailers such as Gamestop (GME). Since we are still at the beginning of the Gaming cycle (3 major consoles out), I'd buy Gamestop but carefully watch the developments in Gaming on Demand. (author holds: GME)

3. LOSER: Traditional Broadcasters

REASON: As IP Protocol TV (IPTV) becomes more prevalent, broadcast and cable channels will have less drawing power. There will be much more selection and many more choices for the average consumer.

TIME FRAME: We are still very early in this cycle. We are in the innovation stage. However, even traditional browser based entertainment/videos, games are reducing the time people spend watching traditional Broadcasters.

4. LOSER: Traditional Advertisers

REASON: As people adopt DVRs and Tivos in much larger numbers, the power of the traditional advertiser goes down. With DVRs, people can easily forward commercials. TIVO and DVR users usually gush over the technology and it truly changes the viewing habits of those who use it.

TIME FRAME: DVRs and Tivo (TIVO) are being adopted in greater numbers (though not as fast as the adoption of the VCR?). By 2010, it is said that 30% of US households will adopt it.

5. LOSER: Traditional Desktop PC manufacturers?

REASON: As the Digital Living Room becomes more advanced, and as more internet activity moves towards the digital living room, less people may be using their Desktop PC. Digital Living Room Devices such as Tivo (that sit between an HDTV set and the broadband connection) can interact, but do not require the Desktop PC. The nature of these Digital Living Room Device (such as Tivo or a set-top Box or AppleTV) does not necessarily have to be the traditional Microsoft (MSFT) or Apple (AAPL) Desktop PC.

More losers may exist but the above should hopefully give us an idea what may be in store for certain businesses. Those in danger of obsolescence have to act now or they may end up being the dinosaur of the technology world.

YouTube will work with AppleTV; Tivo has a Profit

In Today's news in the Digital Living Room:

1. Apple Announces that YouTube videos can be seen using the Apple TV product

2. Tivo posts (1st ever?) quarterly profit.

Apple (AAPL)
Tivo (Tivo)
Google (GOOG, owner of YouTube)

Which Direction will the Digital Living Room Revolution take?

When we compare the vision of the Digital Living Room Revolution, and the current implementations right now, we see that there is potential here today. However, which direction will industry take?

As my previous post on the Current Contenders shows, there are many different ways companies are playing the current Digital Living Room. There does not seem to be any convergence, and each company is creating a proprietary system. Tivo has a proprietary system (so they can earn monthly subscription fees). Comcast DVR set-top boxes have a proprietary system. According to a CNET article, Gartner analyst Van Baker says that electronic companies are trying to lock consumers into using their proprietary technologies so they can charge a premium for their products.

Is this the wave of the future, where many companies are pushing proprietary systems competing for their share of the pie? Will there be a true winner in the end and will consumers adopt the technology in large numbers? Or will there be a move towards open standards, interoperability and convergence?

If there are open standards and interoperability, I can imagine the equivalent of a Computer sitting between the service provider, and the HDTV set, while being part of a home network. This computer-like device should be very easy to use and install, have an easy to user interface, and have all the computer like components such as internal hard drives, USB connections, wireless connection, wireless keyboard and remote device, an operating system, and the ability to run third party applications. This device should be able to interoperate will different service providers (Cable, Fiber, DSL companies), different HDTV sets, interact with different types of PCs in the Home Network (Apple or Microsoft PC), and be able to run third party applications. The system should be modular and accept external hard drives and other devices, much like the current PC.

But what direction will industry take? Apple (AAPL) seems to have been very successful with making their system a closed system with iTunes and iPods. Why would a company with a very dominant position using the closed system model want to adopt the open model?

We are in the very early stages of the Digital Living Room. These are exciting times, and I am very interested which direction industry will take. What will industry do next?

Current Contenders in Todays Digital Living Room

When I say Digital Living Room, I am imagining a setup such as this:

1. High Definition TV Set
2. Comfortable seating to enjoy the Digital Living Room.
3. Broadband Connection.
4. A computer like device that interacts with the Broadband connection and the TV.
5. Interaction with a home network or an alternate computer (Optional)
6. Good sound system (nice, but not a requirement)

Before we get to the Digital Living Room of tomorrow, we have to look at today's technology and look at all the current contenders.

Contenders:

1. DVRs and Tivo (TIVO):

DVR is an acronym for Digital Video Recorders. While a VHS recorder recorded in a VHS tape format, the DVR records programs in a digital format in its internal hard drive. DVR's typically have a much better interface than the old VHS system. They normally incorporate a detailed Channel Guide, and a user can typically just choose which program to record very easily without having to manually set start and stop times. Certain other DVRs have much more user friendly features. Many offer to time delay live TV (want to pause the Big Game while you step out and pay the Pizza delivery guy? You can do that). Many offer you to easily forward through prorgams and commercials.

Tivo is a particular type of DVR (along with its software), and is often mentioned as the leader and innovator in the field. TIVO is publicly traded on the Nasdaq. Tivo has many other special features including a special program with Amazon to automatically download programs to the Tivo Box, and special features to access a networked PC's multimedia content including pictures.

2. Set-Top Boxes:

Many cable and satellite companies offer set-top boxes. These often connect directly to the broadband connection and the TV. They often translate the incoming signals (from Cable or Satellite) and send the data to the HDTV set including offering many digital channels and High Definition content. Some have the additional features such as offering video on demand. Some even incorporate a DVR to record programs in their internal hard drives.

DTV (Direct TV) and DISH (EchoStar Communications) are both satellite providers.

CMCSA (Comcast) is a cable provider who offers a set top box with video on demand, HD content and a DVR.

NNDS (NDS Group) and CSCO (Cisco, through their acquisition of Scientific-Altanta) are set top box makers.

T (AT&T) offers AT&T U-Verse, what they market as an IPTV solution. It offers similar functionality to Comcast who offer Video on Demand, Detailed Channel Guide and DVR capability.

Many other companies exist. What I list above are some examples.

3. Gaming Consoles such as Nintendo Wii, Sony PlayStation PS3, Microsoft Xbox:

Aside from being gaming consoles, these consoles can be entertainment centers as well. The PS3 contains a full Blu-Ray Player. Some people even choose to buy a PS3 not for the gaming capability, but to be able to watch Blu-Ray movies (can be cheaper than buying a dedicated Blu-Ray DVD player). The Nintendo Wii, even has the capability of integrating the Opera Internet Browser. Now, with the Nintendo Wii, you can browse the web using the Nintendo Wii controller from the comfort of your Living Room couch and enjoying a large screen HDTV set.

Microsoft (MSFT), Nintendo (NTDOY), Sony (SNE)

4. Windows Media Center

Windows Media Center is a Microsoft (MSFT) produced application that is designed to serve as a home entertainment hub. With tuner cards, Windows Media Center is capable of acting as a DVR. The Media Center can also have access to different media on the PC.

Working with a Windows Media Center Extender, media can be displayed on a display such as an HDTV set. Windows Media Center Extenders are "set-top boxes that are configured to connect via an Ethernet or Wireless network to a computer running Microsoft Windows XP Media Center Edition or Windows Vista Home Premium/Ultimate to stream the computer's media center functions to the Extender device. This allows someone to be able to use the Media Center and its features (such as view photos, videos, listen to music, watch live television and use DVR functions, watch recorded TV, etc.) on their television or other display device." (Wikipedia) The Xbox gaming console can act as a Windows Media Center Extender

5. Apple iTV:

Apple's iTV is a device much like a set-top box that connects directly to the HDTV set. This device can wirelessly (or through wires) sync up through a local computer which contains media including iTunes media. Now instead of watching the media in front of a small computer screen, this media can be viewed directly on an HDTV set in the living room.

AAPL is publicly traded on the Nasdaq.

6. Sling Media's SlingCatcher:

The company which brought you the SlingBox now brings you the SlingCatcher. This device can bring internet content to the Living Room HDTV display.

Sling Media is a privately held company.



More on this subject in the future.

The Digital Living Room Revolution

In Cody Willard's Blog, he mentions that there is great "secular growth in the browser-based Internet-video cycle [as it] accelerates over the next few years. " While I agree with Cody Willard in this, I think this is only going to be part of a much larger scale Revolution: The Digital Living Room Revolution.

Viewing videos using traditional Internet Browsers (Internet Explorer, Firefox) is great. I can easily imagine a teenager sitting in front of their PC or workstation (or maybe in an Internet Cafe) going to YouTube and browsing videos and user generated content.

However, I think there are limits. I don't see grandparents regularly going to YouTube and browsing content. I don't see families sitting together enjoying YouTube. (Nielsen ratings says that there are more men than women who use YouTube, and those 12-17 years old are the key demographic.) Even if movies are streamed and viewed using an Internet Browser, I don't think many people would want to sit in front of their PC watching a 2 hour movie.

To reach a much wider audience, and to achieve a true widespread, paradigm shifting Revolution, the interface has to change. I believe the Revolution will be centered around the Digital Living Room.

I can imagine a future with the Digital Living Room (includes HDTV sets, a good sound system, and a very easy to use computer-like interface to the internet):

1. No longer will people be restricted to Cable Channels or Broadcast Television. Users or new companies can generate new content and videos and stream these directly to a family sitting on their couch watching their HDTV set. I can imagine a user using a simple remote interface (a modification of the Nintendo Wii's interface?) to change IP channels in the same way as a user today would change channels on a regular TV.

2. DVD players (even Blu-Ray or HD-DVD) becomes obsolete as video on demand gains wide acceptance. People can watch any program they want anytime they want without having to go to the video store.

3. Stores selling games for Game Consoles such as the Playstation PS3 becomes obsolete as gamers can download games directly to their system.

4. Instead of using the telephone, users can communicate with each other directly in high definition video calls.

5. Instead of having simple email, people can have video emails in High Definition.

6. The nature of retailing changes as people can evaluate and buy items with the aid of High Definition videos. Since the interface is easy to use and accessible to a wide audience, many more people would be able to buy items through the internet.

7. New developers could develop value added applications such as having a streaming ESPN sports ticker while watching their favorite sitcom on another channel.

These are just a few examples of the Digital Living Room. While there are some hints of this technology at this present time, there are many steps before this vision can take place.

In my next few posts, I intend to explore the current state of todays Digital Living Room and speculate what might happen in the future.