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SpirE-Journal 2005 Q2

The Digital Home Network – The Next Frontier for Consumer Electronics in Asia

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The Digital Home Network - The Next Frontier for Consumer Electronics in Asia

The home network is poised to become the next big bet for the consumer electronics business. The common platform in the home, which inter-connects digital appliances and external networks, provides huge opportunities for bundling and partnerships with device or content producers. This article looks at the rise of the digital home network in Asia and who stands to gain.

The Concept: Connecting Home Devices To Networks

In the futuristic cartoon show “The Jetsons”, the characters received “intruder alerts” and satellite images via their mobile phones and spoke through television sets and watches. Today, this imaginary sci-fi world is becoming a reality. Modern consumers are increasingly able to deploy similar technologies right in their living rooms. Welcome to the age of Networked Home Technology.

Digital technology is now enabling faster and better connectivity between consumer devices like the computer, the television and its set-top box, the digital camera, the printer, the mobile phone and the audio music player. Increasingly being run on digital content, these devices are able to inter-connect and generate new and exciting consumer experiences:

Watching TV via a broad broadband Internet connection, which allows digital manipulation and storage of television content, as is possible with computer video clips

Pitting your gaming skills against players on the other side of the globe in the privacy of your living room, through an Internet-enabled gaming terminal on your flat panel television
 
Accessing the Internet on your mobile phone and viewing CCTV feed showing images of your home while you are at work

The Stage Is Set: The Growing Digital Installed Base in the Home 

To realize the full potential of the digital home network, four broad developments are needed. All four are present in Asia today:

Digital Home Appliances:

Digital imaging, audio and gaming products are widespread, while digital and IP TV services are becoming more so. Consumer demand in Asia’s fastest growing segments is clearly focused on products that allow users to acquire, store, view, and manage digital content easily across different devices in the home.

A Common Platform:

Equipment is needed that allows installed home products to inter-operate with consumer electronics devices. Vendors like HP, Samsung and Sony have begun to sell such devices.

Connectivity:

A medium is needed through which various appliances can be inter-connected and connected to external networks like the Internet. This too is becoming pervasive. Home wireless broadband networks are quickly becoming commonplace in Asia’s more mature economies. At the same time, in one domain after another, vendor-neutral standards of connectivity between devices are emerging faster and faster.

Digital Content:

Any network has to be sustained by the content that users can access over that network. Attractive content, relevant to either work or lifestyle, is the life-blood of a home network.

In the recent 2004 Marco Polo Survey which polled 5,000 respondents across the Asia Pacific outside Japan, 24 per cent of respondents owned more that one laptop or desktop computer. Of these 1,200 respondents, 49 per cent were aware of home networking. A majority of the broadband users were found to be already sharing high-speed Internet access across multiple personal computers (PCs) at home. 32 per cent had already set up a home network at some level. The leading reasons for this were:

Sharing of fast Internet connections (32.8 per cent)
 
Sharing of common printers (21.3 per cent); and

Sharing of data files (17.9 per cent) amongst multiple PCs

The pre-conditions are set for rapid take-off of home networking in Asia.  

Digital Home Appliances: Coming of Age

A new generation of digital home appliances has already taken over installed base from their analogue predecessors. This trend is already well advanced in mid-to-high income markets like Australia, Korea, Taiwan, Hong Kong and Singapore. In Asia’s leading population centers – China, India and Indonesia – the potential for growth is far greater.

After the VCR:

Across the world, DVD player sales have been growing by 500 per cent annually. By the end of 2009, nearly 500 million homes globally would have DVD players, as compared to 400 million with VCRs.By the end of 2001, there were about 13.4 million households with DVD players in the Asia Pacific region, representing 2.4 per cent of all homes with TV sets2. Asia-Pacific markets like Australia, Korea, Hong Kong and Singapore now have DVD penetration rates ranging between 10-35 per cent of households3, offering a fertile ground for home networking.

After the Walkman:  

Worldwide portable digital music player shipments are expected to explode from 6.8 million in 2002 to over 36 million in 2007. MP3 player vendors Like Apple, Creative and I-river have met with tremendous success in Asian markets like Japan, Singapore and even India. Globally, the number of legal music downloads has increased ten fold since 20044. The International Federation of the Phonographic Industry predicts that MP3s wouldroughly 25 per cent of all music sales by 20105. Most CD players and music systems are already MP3 enabled. More and more mobile phones offer MP3 functionality.

After the camera:

Global digital camera sales are estimated to reach nearly 53 million units in 2004. Sales are expected to grow continually at 15 per cent over the next four years, reaching over 80 million units by 2008. Traditional silver halide photography vendors have re-invented themselves as digital photography companies. The best example of this is Kodak, which is now a major digital camera and on-demand print vendor.

After the door intercom:

A fast growing trend in Korea, Japan and other Asian markets is CCTV, either positioned at the front entrance of a house or indoors to monitor the activities of children or foreign domestic workers. Many homes have digital CCTV devices, with the digital feed being stored on DVDs via digital video recorders, or even being accessible on the Internet via passwordprotected sites.

And above all…After the television:

The television, the pivotal piece of hardware in most living rooms, is also being digitized. Digital Television (DTV) shipments are forecasted to reach 93 million units in 2008, up from 17 million units in 2004, with Asia making up the largest share.

Two significant trends are emerging in the TV market today:

CRTs are being replaced with flat panels and micro-displays in direct-view and rear-projection TV sets.
Digital tuners are being integrated alongside analog tuners in large TV set markets like North America, Europe, and Japan.

The flat-panel TV is fast becoming a mainstream product. The price of flat-panels, such as LCD and plasma display panel (PDP) screens, has fallen dramatically over the past few years. With huge TFT-LCD investments coming on-stream by the likes of Samsung and LG-Philips, prices look set to decline for years to come.

Putting It All Together: The Hubs Are Here! 

Today, three ‘islands’ exist in the home:

The office networking island, which includes the PC and PC peripheral products (printers, monitor, modem, etc)
The mobile networking island, which includes mobile devices such as mobile phones, PDAs, laptops and portable audio devices
The home entertainment island, which includes home entertainment devices such as TV, DVD / audio player, DVR and set-top-box (STB)

At the centre of the home, manufacturers envision an intelligent device, such as an advanced Set Top Box (STB), or a PC that can manage and distribute rich digital content to multiple consumer devices.

The Battle For The Hub Of The Future – the PC versus the Set-Top Box?

Much ink has been spilt in debating whether the PC or the Television STB will become the hub in the home.

Currently, computer and OS manufacturers such as Microsoft, Intel and Dell, most of which are based in the US, tend to pursue the ‘PC-as-the-center-of-the-home-network’ approach. These companies are developing devices that allow entertainment applications like television content and music files to be played from the PC.

On the other hand, most consumer electronics manufacturers such as Sony, Samsung and LG, which are Asian-based, push the ‘advanced-STB-as-the-center-of-the-home-network’ approach. An example of this is Sony’s Concoon brand initiative. It involves giving television sets and other entertainment devices a network connection, a hard disk drive and the ability to connect to broadband Internet connections.

Who will win this battle? Most consumers today prefer to access the Internet via a computer and to access “entertainment content” – television, movies and games – via their television and STB. It is likely that two digital hubs will co-exist in the short-term before one definitively displaces the other. In the long-term, however, home networking in Asia is likely to adopt the advanced-set-top-box approach (or home gateway) as the main hub in the home. The PC Media Center is expected to act as a sub-hub for home-networking devices.

The Race To Become The Home Hub Of Choice

IT and consumer electronics manufacturers are positioning themselves to tap the growing opportunity in the home network space.

The home network device of the future must fulfill two distinct roles – connect various home devices and connect these devices to external content networks like the Internet and cable or satellite broadcast networks:

An example of an STB hub is the HP Media Receiver 5000 Series, which acts as a hub between the television and home theater systems on the one hand, and the computer on the other. Users can access PC content via a standard TV remote control.
Another aspiring STB hub vendor is Samsung, which has been selling digital STBs since 1999 and PC media centers since 2001. Samsung plans to launch an STB-based “home gateway” product in 2005. This promises to act as a switching node, allowing appliances from the CCTV to the refrigerator to access the Internet.
A third example of a hub: the TiVo Box, that allows searching and storing content from TV broadcasters and the Internet as well as connections to online video rental stores and other e-commerce sites.
Gaming terminals like the Sony Play-station and Microsoft Xbox will increasingly act as hubs in future, allowing high-speed Internet access via the television, as well as allowing storage of digital content. Sony has promised that its much-awaited Play Station 3 will contain some elements of home network functionality.

The Holy Grail: Digital Content

The raw material for digital home networks remains digital content – images, movies, music, web pages and home video clips. The increasing importance of digital photographs, video clips and web content is well-known, but a major avenue for digital content growth will be TV and radio broadcasters. Digital and Internet based radio, along with digital TV, will form another digital content stream into the household.
Digital Audio Broadcasting (DAB) has already made a substantial impact in Taiwan. By “piggy-backing” data streams onto DAB, broadcasters enable Taiwanese mobile device users to access latest equity market data.
China is aggressively promoting digital TV broadcasts that offer sharper images and interactivity, like online shopping. The Chinese government is launching terrestrial digital TV services in 2005, so as to switch as many consumers as possible to digital TV before the 2008 Olympic Games. It aims to convert all 380 million viewers to digital technology by 2015.
Terrestrial digital TV has already been launched in Korea, Japan and Australia.

The Way Forward: Who will succeed in the home network domain? 

Before digital home networks enter the mainstream, a number of issues will need to be resolved. How this happens will determine who wins and loses in the digital home network arena.

Fighting over common standards  

Although technologies for home networking are available, uniform standards are still lagging. For instance, the networking capabilities developed by Asian appliance companies like Sony, Hitachi and Matsushita are based on a Linux platform8. This clashes with the PC centric networking systems developed by Microsoft.

Natural evolution will favor the emergence of a few dominant players at the expense of others. However, we should not discount the possibility that the industry may come forward and voluntarily embrace a single, open standard. The Digital Living Network Alliance (DLNA, formerly known as the Digital Home Working Group) released the first version of its interoperability guidelines for sharing content between PCs and consumer electronic appliances on home networks in June 2004.

In order for any integration to be successful, interdependencies and alignments are absolutely necessary. It still remains to be seen however, who will have the most bargaining power and therefore dictate trends in common platforms.

The Bottom Line: It’s all about flexing Business Muscles 

There can be little doubt that the digital home network will become pervasive in Asia. The vendor and standard that will carry the day will be one that delivers inter-operability, storage and ease of access via PC, TV and Internet. But above all, victory will go to the vendor which can leverage existing distribution networks to win market share for their home network device and standard.

Consumers are accustomed to buying access to digital networks from two types of companies – telco carriers providing Internet access, and cable or satellite TV operators. These two groups of companies will greatly influence the consumer’s choice of digital home network vendor and standard, since consumers will naturally turn to them in deciding how best to extend their PC and TV-based content access.

The biggest challenge facing digital home network vendors like HP, Samsung and Sony will be to capture the allegiance of the dominant operators in the telco carrier, cable and satellite TV space, so that they will be able to convert their captive customers. Among others, Samsung has shown a keen awareness of this by distributing its STBs in Japan via its partnership with Japanese Internet TV provider Softbank.

As with the saga of desktop operating systems, success may go to the player with not only the best technology and brand, but also the best business acumen.

 

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