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Deregulation Smoke and Mirrors



Digital Living Room
By John Latta, WAVE 0601 1/6/06

Foster City, CA
December 5 - 6, 2005

Digital Living Room – The Façade and The Realities

Managed by Michael Stroud, the founder of iHollywood Forum, Digital Living Room is a small event focused on companies seeking to make the connected home a market reality. There is a spectrum of speakers but unfortunately the emphasis is on chats and informal discussions. As a result, only in the case of the feature and keynote presentations, are formal presentations given. Thus, the effectiveness of the “fireside chats” is only as strong as the moderator and the preparation of those being interviewed. Nonetheless, the audience includes many key individuals in the industry. Lacking in the content is hard data on the market and it’s potential. Even the session with market research firms had no presentation materials. Thus extracting the nuggets was not easy.

As the WAVE sat in sessions all day and networked with the conference participants, the contrast was foudroyant. There is wide spread expectation that the fully networked home with media everywhere is a huge opportunity. But in session after session and in conversations with conference participants, reality set in. The market was felt to be 5 – 10 years off and in some areas there is divergence from a solution, including DRM interoperability and DVD formats. More important, no one proclaimed that consumers really want this – it is an expectant market on the part of the sellers, but nothing was presented which made the prospect for a market compelling to the buyers. As one VC commented over table discussions – you are all so negative but when asked does he have any stars in his investments, the response was silence.


AOl on Online Video:

There are 6 reasons why online video has become a compelling proposition.

Pervasive broadband

Quality and quantity of video including the role of user generated content.

Quality of the playback experience.

Availability of video search.

Business model for free advertiser supported video      playback.

Motorola sees the connected home as supporting the following:

Unified landline and cellular operation.
Calendar sharing
Access to home information anywhere in home
Seeing live camera feeds on television
Synchronization in the automobile
Updating the home media collection
Sharing data with the PC
Explore the library on television

The center of the ability to do these operations is the cell phone.

Critical to many components of this is the ability is exclusive content agreements. Customers will pay in four ways:

Pay as you go
On demand
All you can eat.

Harmonic was promoting the digital living room with its IP TV products. These do:

MPEG2, -4 and WM9 encoders
IP Professional receivers
Gigabit encryption platform
IP Edge devices

Satjiv Chahil, SVP, Personal Systems Group spoke of the role HP could play. It was claimed that 4m media PCs have been shipped and HP shipped 1m of those. Satjiv evaded most questions and gave no insight into how HP would play into this market.

Rob Glaser, Chairman and CEO, Real Networks gave a keynote.

The trends in digital media usage include:

Time Shifting
Place Shifting – Portable devices

Experience has shown that music blazes trails and video follows.

The bad news is that illegal music is at least 4X greater than the combined sales of subscription and a la carte music availability.

One of the shortfalls of today’s legal music availability is:

Subscriptions require an up front commitment.

A la carte plans are great but inhibit sampling and discovery

Real’s strategy is to provide the most complete offering by creating the largest music delivery network, support on and off PC delivery and have a complete offering of means of downloading.

It was announced at the conference that this service called Rhapsody would be expanded to:

Support discovery, playback and sharing of full length songs (complete library of 1.4m songs)

Support Windows, Mac and Linux along with Explorer, Firefox and Safari browsers.

Rapsody Web Services initiative is to allow digital music playback as just another web service. It was shown how easy it would be to include “Rhaplinks” into RSS feeds and blogs. This web service is in its early phases and developer feedback was invited.

Scientific Atlanta claims that the digital set top box is the home appliance of the future. It was claimed that consumers rank the following as most important in their home networking:

Copy content to DVDs
Double HDD storage
Access content from any TV

Scientific Atlanta has introduced the Explorer 8300 MR-DVR which allows:

Consumers to get access to recorded content in up to three other rooms in the home via coax wiring ( 3 set top boxes sold in home);

VCR functionally supported from all set tops

Time Warner Cable has launched the product with others testing.

Scientific Atlanta sees a long term proposition including:

Including the PC in this connected home;
Seeing content prepositioned on the hard drive
Ability to play games on the set top box
Watch PVR content on cell phones
Voice recognition as a means of navigation.

Scientific Atlanta maintained that the set top box is the centerpiece of the digital home.

SoniqCast announced an iPod like music content device (player) and service. Tao has the hand held consumer device, SoniqSync is the wireless media content portal platform and passalong networks provides the music. The media player will work over 802.11 networks and a PC is not required. When asked if this device is compatible with the Rapsody network SoniqCast would not respond.

GlooNet announced its ability to support remote access to content anywhere – the GlooNet Access Services Platform . In particular this is on phones and in the home. Particular emphasis was on personal media, user created, which can be shared in the home and on a phone. The current platform supports music and documents and will support video in Q1 2006.

Chat Comments

Most of the value came in the discussion comments from the panels. A sample includes:

There is two types of video content – short form and long form (complete program or movie)

Media delivery is moving from the PC to the web which is described as the cloud in the sky.

When the transition is made to IPTV it means ON DEMAND.

Gartner had a number of critical comments:

The digital living room is not here yet.

There are very few PCs in the living room

The major problem with today’s solution is lack of interoperability

There is not much light at the end of the tunnel to achieve interoperability

Intel believes that standards are essential. But standards also force commodization and with commodization comes Taiwan Inc and the lack of a competitive advantage in the market. This brings into play questions on the viability of the business.

DLNA is moving to support DRM. The problem is that DLNA will only support open standards and none of the DRM technologies is open.

Intel stated that VIIV was 2 years in the making. It is to provide a complete experience and to “do things easily.” However, when Sony was asked how VIIV relates to it there was no answer.

Coral Consortium is to seek interoperability in DRM technologies and offerings.

Neither Apple with FairPlay nor Microsoft with Windows
Media are a part of Coral. Without these companies
Coral will go nowhere.

There are no easy solutions to the DRM mess. It is seen that DRM fragments the industry as content providers line up with different DRM solutioins. It was bluntly stated that DRM is horrible and getting worse. One assessment is that a solution to the DRM mess is 5 – 10 years away.

The Motion Picture Association of American (MPAA) represented that it is not in the way of the connected home. We are working the issues. But many others on the panel disagreed strongly. The solutions the MPAA seeks are too complex and it is not clear consumers will accept them.

Over and over it was asked Do consumers want the connected home? Gartner felt no and when the question was raised the only other answer was – this is the future. The build it and they will come mentality is present in this expectant market.

Metadata remains a barrier to the market. That is, having a universal form of metadata which is the basis for searching and retrieval will be required. But this is not universally available and may take years to create. As one questioner asked – will this take a million Chinese entering data to get there?

Given the complexity of the issues it was stated numerous times that the realization of the networked home is 5 – 10 years away. One of the key issues is that every supplier and service provider seeks to monetize their technology. To accomplish this standards, as they impact the company, are resisted, in spite of words.

There are various opinions about the potential of piracy for video. Some felt it would avoid the piracy which is rampant in music but others felt the ability to control it has passed and free video programming or movies is only a short time away.

As the panels addressed the current controversy over Blu-Ray and HD DVD there was silence. In spite of the fact that there is universal agreement that the lack of one interoperable recording technology will impede the industry no one would stand up and discuss it.

The operators are reluctant to give up control. In response to the Scientific Atlanta presentation on the central role of the set top box it was stated that the operators do not want the PC included in the network, in part, because the MSOs do not control the PC in the home. Yet, Microsoft cited that they have found the new entrants, i.e., Verizon, Bell South and SBC, quite open to supporting the total home network.

Only a few speakers have cited personal media – pictures and video – in the role of the connected home. This is being ignored by most because it is felt it will be hard to make any money here. Only with published media will the connected home become a viable economic opportunity.

A Journalist’s View

Steve Wildstrom, Business Week Columnist, “Technology & You” gave the keynote. His comments were interesting and blunt.

There is a huge question in this market – How to get to media everywhere?

This will not happen quickly.

It will take 5 years just to get past the early early adopter phase.

At long last video content is becoming available. The agreement between Disney and Apple for the video iPod is a major breakthrough and more is coming.

The dam has begun to break in the supply of video content.

A major issue is that the technology is much too complicated. There is no excuse for this.

The media center is a great idea but has a long way to go. It is much too complex.

A BIG shortfall of the media PC is that there is no way to integrate the PC with video unless the source is theInternet or over the air. The media PC will not work with any content supplied with conditional access, i.e., cable and satellite.

The media PC must have a supply of video to work with home networked equipment. Yes, there was a recent announcement with Cable Labs but it had no dates when this will be accomplished.

Apple has done brilliant work. Now nearly everyone knows what digital media is. In the MP3 era very few knew what the concept was. Apple changed this.

I have no knowledge of any activities by Apple but what if Apple adopted Intel’s VIIV technology? This could solve Apple’s media interface issues and hasten its entry into CE for the home.

Apple has gained in the near term an advantage by not licensing Fair Play its DRM technology. In the long run this will hurt Apple because it has inhibited the growth of the industry.

The music industry paid the penalty of shipping content on CDs for 20 years with no copy protection. The movie industry will not repeat this.

To understand what a company should not do with DRM look at the Sony BMG mess. I believe that customers will accept DRM if the company respects the customers. Sony showed the consequences of violating this tenant. That is, they had a horrible time.

Many fail to realize that DRM does not have to be perfect to be effective. The DVD protection is a case in point. Yes, the DVD copy protection can be circumvented but it is good enough to significantly limit the level of piracy.

The other factor in frustrating piracy is fair pricing. The industry followed Time Warner in its lead to keep DVD at a fair price - $15 to $20. As a result customers accepted it.

Further, for DRM to be effective it must be transparent to the consumer.

We often hear that the fear of piracy of content is the reason for DRM and the position the studios have taken. But  I believe it is to protect the business models of the content companies. The movie industry has a carefully tuned distribution model that seeks to maximize the revenue but this is under assault. The television industry also has long developed relationship with advertisers and this is under assault. But the Disney Apple deal is a sign of a willingness to change.


Google Video – A Business Experiment

Steve Wildstrom had a fireside chat with Jennifer Feikin, Director, Google Video.

The Google Video project is consistent with the mission of Google – to organize the world’s information and make it useful. We launched book search and then video.

Our efforts began by taking off the air television and indexing it based on closed captioning. Due to content  rights one could only access single frames and not the actual video. But what we found was that there was a good response to these early efforts.

Google Video is a partnership project. We realize that much of the content is off line. We have had 1,000’s of user submitted videos. In spite of the perception that this is mostly from consumers this is incorrect. Video has come from museums, medical, educations and non-profits.

The next step is to turn this into a service to pay for downloading the video.

We have found out what is most popular using links. That is, it is easy to pass on links to a video and we can track what is happening with the use of a video.

Currently we have two tabs on the video site: popular and random. This was added last week. Some of the content has  taken on viral proportions.

In the pay service we will have DRM. But to our surprise not all content owners are hung up on DRM.

At Google we feel that the Internet is the place for discovery and we are seeking to apply this to video.

When concerns were expressed that such a service could be overloaded with submissions and bandwidth needs Jennifer responded: At Google we are good at search and scale. We are not concerned about the scale that this project would require.

Current Google Video supports all file formats and we do some transcoding.

Google is currently examining how advertising can fit into Google Video.

When asked if Google Video will go to the television in the home the response was:

This is a direction of the future.
It is a natural progression of the product.


WAVE Comments

There are three camps in the networked home and more specifically the home with digital media – traditional thinking, the Apple approach and the Google view.

Traditionalists are the vast majority at this event.  They embrace the perception that the home is an IT center but it cannot be nearly as complex. They, moreover, are waiting for content to become available.  Traditionalists believe that standards are great when they apply to others and that interoperability is essential. Finally, solving all the issues is really hard and may take a long time.

Apple has several components which generate awe in this crowd including elegant design, simplicity of use and Apple’s ability to cut deals to enable content to be available which consumers will pay for.  The persistent question is: why won’t Apple let us participate?

Finally, Google is about simplicity.  Their mission is to make the world’s information available and useful. Video is a part of information therefore Google should include this in its services. While this project is an experiment in learning, there is continual learning from the suppliers and users, and the business model is a learning effort.

There is a slight problem. The business-as-usual crowd, living in traditional thinking, has a very difficult time replicating Apple and an even worse time understanding how Google works. Apple has been successful. Google has a potential that no one can assess. But if Google succeeds, it can change the landscape of the Internet and even home networking. Steve Wildstrom is right, the biggest barrier to innovation is the business model. Given that Google has the least concerns about business model it can be argued that it has the greatest potential to change what the business-as-usual crowd cannot solve.

Perhaps most notably, the operators were not present here.


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Page updated 1/24/07
Copyright 4th Wave Inc, 2007