Consumer Electronics' role as “king of home entertainment” threatened in near term

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February 13, 2006 2006 According to IDC's latest Digital Home research, "Australian Digital Home Convergence: One Box to Rule All", the proliferation of digital media is changing the way entertainment reaches consumers. As the demarcation lines between delivery platforms such as the TV, Internet and mobile devices blur, entertainment does not necessarily reach consumers via TV broadcast only, but also through the Internet. Consequently, broadband service providers (BSPs) and IT vendors will capitalise on this trend and compete for the control of the home, thereby threatening Consumer Electronics (CE) vendors' position as king of home entertainment in the near term.

Both BSPs and IT vendors are not relying solely on a first-class device to win consumers; they are focused on formulating a seamless digital entertainment experience by service-device-platform or service-device integration. In contrast, CE vendors put more effort in improving product features and manufacturing efficiencies, offering CE standalone devices with no linkages to content and platform.

IT vendors are capitalising on the diverse and dynamic CE market, stimulating new business models – service-device integration - that drive services around devices to provide a seamless complete solution for consumers. This also provides additional revenue streams for IT vendors and differentiates them from CE vendors.

“A successful example of service-device integration is the coupling of iPod with its music service, iTunes Music Store. Its success allows Apple to leverage it to include videos in the portfolio. Apple's service-device integration model is very powerful as consumers directly interact with Apple's devices and services," said Sophie Lo, IDC Analyst for Consumer Digital Markets.

The service-device integration will eventually evolve into service-device-platform integration as BSPs bring IPTV offerings to market - bundling the content, device and platform together.

"This year, we expect more traction in digital home development with local BSPs investigating IPTV and home gateway offerings. BSPs will assist consumers in connecting disparate technology components together with home gateways, thereby nurturing digital home adoption to mainstream consumers," noted Ms Lo.

BSPs have two competitive advantages over IT and CE vendors in delivering a media hub to the home. Firstly, they can decrease or even eliminate the acquisition cost of the media hub by embedding it into the monthly fee they charge for services. Secondly, by bundling digital devices with digital services, BSPs overcome the consumer education hurdle to get digital devices invited into the home.

“It is important to note that consumers' budget of time and finances on home entertainment is not unlimited. To win the consumers’ hearts, the digital home solution needs to be seamless (easy to set up, maintain and use) with compelling user value,” added Ms Lo.

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