Digital Home Convergence

Digital Home Convergence

Overview

As technology and entertainment converge inside the home, major players in various industries are taking different strategies in planning for the future. The concept of the “digital home” will likely take one of two forms: a closed wired entertainment network (PVRs, OnDemand) or an open wireless data network (web, email, VOIP, IPTV). The closed model is already being offered in many homes across the country, but as technology advances, the open model will become the standard. It is important to understand how both technology and entertainment are companies are strategizing to control the “digital home”.

Based on research in this report, it appears that four things are likely to occur. First, convergence of technology will create the need for standards in the digital home network. Much in the way it took some time before the Wintel model became standard, we will have to wait and see which model takes hold in home entertainment. Once a model is chosen as standard, there will be an explosion of products and services catering to that model in the market. Second, increasing competition will lead to alliances between companies in different industries. PC technology companies that have no presence in home entertainment might look to deal their way into the “digital home”. For example, Microsoft is currently striking deals with several major phone companies to provide the platform for IPTV. Many people also suspect that Apple might acquire TiVo in order to gain a presence in TV and create a service platform for video-on-demand. Third, the successful companies in the battle for the digital home will be the ones who earn customer loyalty. Consumers are reluctant to change their behaviors, especially ones like TV watching that are so entrenched. Companies need to deliver products and services reliably in order to facilitate a consumer shift to the “digital home”. Finally, major content providers will hold up the process until they see digital distribution as a way to increase their long-term profits. Home video divisions of entertainment companies are extremely profitable. They do not want to jeopardize this profitability just to be at the front of the technology curve. The infrastructure behind the “digital home” will have to be in place before the major studios choose to participate.

Hardware - PCs

Companies in the ...

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...cess is due to a combination of factors, including “pricing, infrastructure, demographics, geography, deregulation, and clear user benefits.”

Conclusion

In conclusion, we expect to observe significant convergence of technology and entertainment, which will either be in the form of a closed wired entertainment network (PVRs, OnDemand) or an open wireless data network (web, email, VOIP, IPTV). We predict that the open model will become a standard in the future. In support of our thesis, we would like to recapitulate four major trends that will likely happen in the near-term future.

1. A standard(s) will be created in the digital home network. Once a model is chosen as a standard, we can expect to see a proliferation of products and services that are compatible with that standard.

2. Increasing competition will lead to increased synergies and alliances amongst hardware, software and distribution companies.

3. The companies successful in the digital home entertainment space will be the ones who earn customer loyalty.

4. Major content providers (e.g. movie studios) will hold up the process until they see digital distribution as a way to increase their long-term profits.