The Demand for HDTV and Emergence of IPTV

The standards for digital TV have been in place since 1994. It has only been in the last few years that the sale of HDTV sets got interesting. While the Wonderful World of Disney sparked the sale of color TV sets, sporting events like the soccer World Cup and football's Super Bowl have driven the demand for digital TV - especially large flat screens.

With digital TV becoming more affordable by the day, the demand for high def home entertainment is growing steadily according to industry observations:

• 74% of European households will have digital TV by 2009
• 10.4 million digital TVs were sold in Asia in 2004 and 28.8 million will be sold in 2008
• 20.9 million Americans will have digital TV by the end of the year, 37 million by 2008
• 30 million digital TV subscribers in China this year
• 14 million British households have digital TV
• 15% of US adults plan to get HDTV
• Digital TV sales were up 70% in 2004
• By 2010 more than 370 million sets should be in use worldwide

What we can't figure out is that with 1000+ channels and the successful rise of reality TV what are all these people watching? Guess Alfred Hitchcock was right -- Television is like the invention of indoor plumbing. It didn't change people's habits. It just kept them inside the house.

While sales are good in front and rear projection systems, it is the flat screen (plasma and LCD) segment that has gotten all of the manufacturer attention (Figure 1).

• Panasonic expects US plasma TV market to reach 1.6 million units in 2006
• LCD TV shipments were up 123% in 2004
• Chinese digital TV production will grow 37% per year thru 2010
• 2.8 million plasma TVs were sold worldwide last year and 1.1 million were in Q4

Panasonic and Pioneer have enjoyed a couple of years of good profit margins from large screen (40-in) plasma sets. Both firms continue to expand manufacturing, growing the size of the screens and dropping prices. Panasonic has pinned so much of its future on plasma sets they are determined not to give up marketshare…no matter what it costs.

But the rapid proliferation of LCD screens is just beginning to impact their market shares and bottomlines. While Panasonic says the better viewing at all angles will keep them in the quality viewing lead, the new G7 panels that are having an impact at the cash register. They have already abandon the sub-40-inch segment to LCD sets, the 44-inch LCD sets are cheaper by the minute and next comes the 50-inch and above arena. Panasonic and Pioneer will have to be more aggressive in their pricing sooner rather than later. Or just keep growing the size of their sets and focus on the "mine's bigger than yours" sub-market.

There has been a lot of improvement in the quality of large screen LCDs and even more production capacity is ramping up. Sony has a $2 billion LCD joint venture with Samsung. LG and Philips have invested $5 billion LCD facility in Korea and they've committed even more investment in the coming years. Sharp has a large LCD plant going up in Japan. The market for eyes looks so promising that Taiwan and mainland China firms have joined the race.

Plasma has historically "owned" the large (40-inches and up) flat screen market because they provided better family viewing but G7 (7th generation) products have eliminated the color distortion and motion blur they had previously. Even the fact that plasma set are cheaper to make will disappear when the new LCD plants go on-line. These folks will not only pump out big screen TVs but also PC monitors as well as cell phone and digital everything screens. Volume is a huge elixir for price flexibility.

Whether it's based on corporate ego or hunger, all of the firms are each projecting they will be the ones that get 40% of the worldwide market... of course!!! So prices are in freefall. The bloodbath will get worse and brand name premium is worth very little in a commodity market. The plasma leaders expect the channel - Best Buy, CompUSA, GoodGuys, Wal-Mart, Costco, Target, etc - to cut their margins to keep the "premium" sets competitive... yeah, like that cooperation always happens!!!

While Intel doesn't care what you watch your content on, they are determined to play a big role in the home. Their latest entertainment approach, Viiv (like jive) may get them there if they could get over the Windows-wait. Dell, Gateway, HP, all of Taiwan and half of China have seen the vision and the fact that all of our content is going digital (Figure 2). They have come to play!

Give them a couple of years and they might make engineers understand that UPnP really has to be both universal and plug-and-play.

Since the "Cable Guy" and satellite folks aren't in any hurry to partner up with Intel on getting the content from Hollywood to the house, Intel has decided to get their attention by helping develop an alternative solution for people who watch "reality" rather than live it. Everyone who has a TV has power coming to the house (otherwise they'd have to watch TV by candlelight) and 50% of the U.S. households (less in other parts of the world) have at least one PC and some type of Internet access.

Dave Barry was right when he said, "The Internet is the most important single development in the history of human communication since the invention of call waiting."

Internet users are getting bigger pipes (Figure 3) and they pushing to do even more of their activity online beyond sending email and IMing, banking/purchasing and searching for information. These people have wants and needs that the cable and satellite industries are simply ignoring (Figure 4).

According to a recent Forrester report, the broadband connected generation has the tools and expects the content:

• 62% of US households have broadband access
• 52% have laptops
• 37% use DVRs for their TV shows
• over 60% listen to music off the Inet
• nearly 60% play games on the Inet
• already 40% use their connectivity to watch movies and video programming

Jim Barksdale and Jim Clark were both right several years ago when they respectively noted that another market is being created now out of Internet technology and the Internet is not just one thing, it's a collection of things - of numerous communications networks that all speak the same digital language.

The chip folks are bent on making that digital market real. They've already given Hollywood the digital rights management tools (don't you like that wordsmansmithing for "keep your D*** hands off my content"?). Hollywood and other content owners now have to realize that it is time for them to sit down at the table and get serious about delivering their entertainment because if they don't, their lawyers will be running around the world suing 8-year-olds and grandmother like the RIAA.

To help make IPTV even more attractive we're already seeing venture funded free-on-demand (FOD) services emerging. If Intel convinces content owners that they can keep more of their money with IPTV video-on-demand (VOD) the cable guys might become customer-centric. That probably shouldn't be too tough of a job for Otellini and his crew…

You know, get 'em hooked on the free stuff and then start selling them the good content. Murdock's News Corp and the networks have already seen the trend and are setting up Internet video outposts. Bury the system-on-chip (SOC) SD and HD solutions inside a bunch of media centers, notebooks and set-top boxes and BAM!!! Hollywood won't have to worry about having to measure up to Alfred Hitchcock's measure of motion picture art…" A good film is when the price of the dinner, the theatre admission and the babysitter were worth it."

Shoot the phone and Internet companies have the opportunity to deliver it all --audio, video, data and phone (sure there are 911 issues to be solved, but...) Won't that be great?

One bill for all your services. Volume and bundled discounts. A single point of contact for customer service. A true competitive environment that is good for everyone... especially the consumer. [Editor's note: It's just too bad that many service providers are currently bundling these services for more than you can get them for by shopping around.]

IPTV whether it's provided by your phone company or ISP isn't going to be a slam dunk success, but it will push cable and satellite operators to increase their service and value offerings. It will be an easy choice for the technocrats.

However, mainstream households will also need an instant on solution and a user-friendly interface when people start viewing their TV and movies on their sub-$1500 HDTV sets.