Wednesday, May 30, 2007

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.

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