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Commentary: Video loses its chains

At this year's Consumer Electronics Show, the vision of video throughout and beyond the home took a big step forward. And Microsoft and the PC industry--not traditional electronics brands--stole the show.

Commentary: Video loses its chains
By Forrester Research
Special to CNET News.com
January 9, 2004, 1:30PM PT

By Jed Kolko, Principal Analyst

At this year's Consumer Electronics Show, the vision of video throughout and beyond the home took a big step forward. Microsoft and the PC industry--not traditional electronics brands--stole the show. But consumer adoption of new video devices is still a long way off.

CES 2004 offered nothing as radically category-busting as last year's watches and ovens. Yet what the show lacked in drama, it made up for in a coherent vision: Video that is free to move throughout and beyond the home. Three nascent categories show the promise of unshackled video.

• Media receivers that send PC images and music to the living room. Microsoft announced the Windows Media Center Extender, a networked set-top box that puts an XP Media Center Edition PC's digital content--along with the user interface--on a television. Roku unveiled a media receiver that gorgeously displays digital images on a high-definition television. Both are major improvements over Hewlett-Packard's Digital Media Receiver, which was 2003's best attempt at linking the PC and the TV.

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• A wireless monitor that shows DVDs and TV programming. The Sony LocationFree TV--introduced earlier in Japan as the Airboard--is a 12-inch flat-panel monitor. It connects wirelessly to a base station, which in turn connects with wires to a digital video recorder (DVR), DVD player and other television peripherals, all of which can be accessed using the LocationFree TV's touch screen. Best of all, the LocationFree TV has an Ethernet port, making it possible to connect anywhere and watch programs stored on a home DVR.

• Portable media players that store and play back digital video files. As with media receivers, portable media players aren't really brand-new: Archos has been selling 1-inch and 4-inch video players for months. But the Microsoft Portable Media Center design, which powers a remarkably sharp-screened model by Creative Labs, stores and plays back digital media without first capturing it as a lower-quality analog stream as the Archos players do. Microsoft also announced that EMI Music, Napster and CinemaNow will make their content, including music videos, playable on the device. And Portable Media Centers will sync with PC-based content using Windows Media Player. Media Center PC owners will be able to transfer recorded TV programs to the device for viewing on the go.

Score one for the PC industry
In the short term, unshackled video will give even more momentum to the traditional computer companies already invading the consumer electronics companies' turf. Why? • Computer sales will rise. Together, the Windows Media Center Extender and the Portable Media Center finally make the Media Center PC a compelling device--it's how the early adopters can at last get portable television content. As consumers replace their current PCs, HP, Gateway, and Dell--all of whom offer machines running the Windows XP media center software--will see a boost in revenues.

• PC makers will build Microsoft-powered peripherals. The Windows Media Center Extender will come in two form factors: a separate set-top box, and an all-in-one LCD TV that includes the Extender software. Guess who Microsoft announced as its OEM partners for these consumer electronics devices? Computer makers HP, Gateway, Dell and Alienware, plus only two major consumer electronics brands: Samsung and Tatung.

• Consumers will need faster home networks. All of these new technologies--except the Portable Media Centers--depend on consumers having home networks that are fast enough to transmit video. Today's Wi-Fi standard, 802.11b, isn't. Unshackled video will push consumers to upgrade to the faster 802.11g standard, install a wired network or wait for the unofficial next wireless flavor, 802.11n. And when consumers get networked or renetworked, the revenue will flow to the gear makers, the broadband Internet service providers, even the portal sites--not the traditional CE companies.

Coming--eventually--to a virtual theater near you
Consumers won't adopt these new video devices anytime soon. All three--the Windows Media Center Extender, the LocationFree TV and the Portable Media Center--won't hit the market before late 2004. Even then, adoption will be slow. For once, price won't be the main barrier: Portable Media Centers will start at $399, and the Windows Media Center Extender should come in closer to a modest $300. The big hurdles will be:

• Home networking adoption among the mainstream. Home networks--a prerequisite for unshackled video--are in only 8 percent of households today. And the main reason households get networks is to share a broadband connection across multiple computers, not to try out advanced entertainment applications. Before home networking adoption reaches 20 percent in 2006, the potential base for new video devices will be small.

• Content protection for television programming. All the major technology companies promise to adhere to digital rights--HP CEP Carly Fiorina even made it a major theme of her CES keynote. Right now, restrictions on copying television programming are few: Archos users can capture analog-out streams as freely as they make VCR tapes, and content owners have not enabled broadcast flags that could prevent hard-drive recording of programming. But as consumers start sharing their unshackled video, a backlash is inevitable. Just the threat of backlash will be enough to slow down innovations--so TiVo users shouldn't plan to be able to copy recorded programs easily to Portable Media Centers soon.

© 2004, Forrester Research, Inc. All rights reserved. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.