CONNECTIONS™ Pre-Conference Workshop

Access, Services, & Multimedia in the Digital Home

Prior to the main conference, Parks Associates hosted a pre-conference workshop for an audience of press, company executives, and market leaders. The company’s analysts, Kurt Scherf, Yuanzhe (Michael) Cai, and John Barrett, reviewed the findings of recent research and reviewed and analyzed recent industry events and trends regarding home networking technologies, broadband, and on-demand services, among others.

In the workshop introduction, Kurt Scherf, Vice President, Principal Analyst, offered a comparison of Parks Associates’ year 2000 forecasts for the penetration of broadband access and home data networks with the actual penetration figures through year-end 2003. The numbers indicate that Parks’ broadband prediction was accurate, while their home data network prediction back in 2000 was too conservative. Wi-Fi devices have quickly saturated the stores and prices have declined dramatically and quickly. This speedy decline, with its erosion of margin, is a challenge for the Wi-Fi players, even those achieving high volumes. Practical applications, such as sharing a broadband connection and a printer, and Microsoft XP were main drivers for adoption. Moving forward, the drivers will be less about practical productivity and more about comfort, convenience, and choice.

Broadband

• There are 25.5 million broadband homes in the U.S. as of April 2003, although it is still a largely urban phenomenon. Rural households are waiting for WildBlue’s two-way satellite-based (Ka-band) service. The industry should expect 31-32 million broadband homes at the end of 2004, with the growth rate beginning to slow.
• Speed is still broadband’s main attraction; content has not yet become a driver. This must change in the future. In addition, value-added services such as virus protection and voice are proving attractive and offer some creative and attractive bundling opportunities.
• The cable companies are moving to the defensive, despite maintaining their dominance in the broadband market at this time. DSL is showing stronger growth than in the past, helped by price drops, while cable has been hampered somewhat by high costs for set-top boxes. Also, tiered services, while popular now, are strategically questionable in the long term.
• However, home networking services are now on the radar as valued and popular service options, so industry observers should expect to see more bundling (including deals with DBS services), VOD over DSL, and speed increases (ADSL2+). For example, SBC experienced an increase of $2.25 ARPU due to bundled services. Not all new options are immediately popular with customers though. As an example of that, Bell Canada is getting low interest in their home network installation service.
• Broadband access to the Internet via power companies is less practical in the U.S. than many other world regions because it is typical in the U.S. for only 6-8 homes to connect to a transformer (100-200 in Europe). Given the strong competition among the major broadband providers in MSAs, power companies may be wise to target underserved rural areas and perhaps use Wi-Fi instead of a direct connection to homes. As the motivation in providing Internet access to these areas often goes beyond just revenue development and to the need to help keep rural communities vital, subsidies or beneficial tax policies may be available. Alternatively, utilities may find it wise to avoid retail sales and instead offer wholesale service to ISPs seeking to avoid the heavy costs imposed by telcos.  

Wireless Services

• Hot spots do not seem to be viable as a stand-alone service and achieve greater acceptance when bundled. With that caveat, hot spots are becoming more common all the time — J-Wire has 20,000 hot spots, T-Mobile has 5,000 hot spots, and McDonalds is pushing for 3,000 hot spots throughout its locations. Toshiba, Time Warner, and SBC are also entering this arena. T-Mobile is partnering with iPass for cross coverage.
• Broadband wireless comes as fixed, nomad, and mobile. MMDS is suffering due to high CPE costs and poor line-of-sight issues. At this time, the opportunity is with underserved, mostly rural communities, which Parks estimates at 20-25 million households. Regarding the wireless standards, 802.16a/d is for fixed service, which will eventually go to 802.16REVd. (2006); and 802.16e/802.20/EVDO are for mobile service, although 802.20 does not seem to have a chance.
• The service providers in this arena are small – only 20 have more than 1,000 subscribers.  Some are forming partnerships though, e.g., with EarthLink, in order to build market share. Still, less than 1 percent of broadband homes use these services.

Networking Technology

Regarding networking technology, technologies such as HomePlug, structured wiring, Wi-Fi, coax, and UWB are at play in the home, and all can play a particular role.

• Just less than one-half of new homes have some form of structured wiring. This is a success story.
• HomePlug will be a useful approach as a backbone for extending the reach of Wi-Fi. HomePlug could also be useful for routing audio or for an AV network backbone.
• UWB will see more volume in PC applications (initially) than in CE applications. As with Bluetooth, UWB is a cable replacement, and supporters should take care to avoid the confusion that Bluetooth suffered.
• Confusion exists among seemingly competing standards, with MBOA (Multiband OFDM Alliance) currently having the upper hand on DS-UWB (Motorola). However, WiMedia just endorsed MBOA, so this arena is still murky.
• Regarding coax, MoCA (Multimedia over Coax Alliance) has emerged as a viable standards body, but the technology is handicapped by the limited number of access points in the home. 1394 (FireWire) also has challenges.
• Regarding future applications, home network storage (NAS) will be a necessary and in-demand application. As more content lands in hard drives, consumers will need quick and easy ways to back up that data.

VoIP

VoIP is a fragmented market, and there is no single dominant player.

• MSOs and CLECs may have the advantage because the service can be bundled, while companies like Vonage will need to muster lasting power via financing as large players enter with their own competitive VoIP services.
• MSOs may partner with a long-distance carrier in order to add muscle and market power to their offerings.
• Regulation will be tricky because it is difficult to distinguish between different types of calls; so much of this market is in limbo awaiting clearer indications of the future regulatory environment. 

Despite uncertainty, however, several large players including Verizon and Comcast are beginning rollouts and experiments.

Games

There are currently 110,000 subscribers for “games-on-demand” (GoD), and Parks Associates projects 2 million by 2007. Everyone in the market is waiting to see the outcome of “the Half Life 2 experiment,” a game which will be released simultaneously through retail channels and online distribution. The success or failure of this experiment will determine the future of this market and whether other game publishers will dare to challenge the currently dominant retail channel. In the meantime, Yahoo! has 160 online games and growing, all mostly small-footprint or back-catalog games.

CONNECTIONS™ 2004 – Day One

Convergence, Chaos and Consumers

John Sculley, former CEO of Apple & Pepsi-Cola Company; Board Member, OpenPeak Inc.; Co-Founder and Chairman, Qbit LLC

In his keynote, Mr. Sculley put the “digital home” industry in perspective by specifying the three initial phases – Curiosity, Useful, and Indispensable – of any vital industry. He put these in context by highlighting the transition (or lack thereof) of other industries as they evolved based on this framework, indication that this pattern may repeat itself during the evolution to the “Digital Home.”

Using the PC industry as example, the three phases are:

• Curiosity Phase – There were many brands and concepts of PCs offered at this stage to help get the industry started.
• Useful Phase – The PC industry provided the “computer for the rest of us.”
• Indispensable Phase – Communications (e.g., Internet, e-mail) drove this transformation in the PC industry, and technical innovation gave way to innovation in supply chain and channels (e.g., Dell).

Companies do not always make the transition between phases. New rules of innovation will exist, often based on changing consumer behaviors, underscoring the importance of primary research. For example, consumers today value innovation in flat-panel display technology. As the Digital Home reaches the Indispensable Phase, understand the changes in consumer behaviors will be fundamental in determining true innovation.

But what are the power shifts for the “Digital Home” that will affect the transition to the Indispensable Phase?

• At 2004 International CES, there were hundreds of flat-panel displays featuring all kinds of innovation in display technology. In time, these displays will become much more affordable than they are today and then become as common as glass windows, i.e., a commodity.
• We must get content to these displays – and Mr. Sculley advised the crowd to think of not just broadband but “ultra band,” hinting that the U.S. should take its cue from Korea.
• The consumer must value these innovations, so companies must address consumer behavior and produce solutions to make the experience seamless and comfortable when using all this content on all these displays.

Dan Gittleman, Chairman & CEO, OpenPeak Inc.

Dan Gittleman describes today’s CE controls as inconsistent and highly complex. When faced with an unfamiliar entertainment system, dog sitters, visiting relatives, or friends don’t know how to change the TV channel, much less switch to the DVD input with surround sound. There are too many inconsistent remotes with no open standard, and similar functions such as channel changing work differently for each box. The user has to know the infrastructure (topology) of the system to route the signals properly, and “digital media” compound these issues with new functions (e.g., there are over 40 digital media adapters that connect a PC to an AV device), new content (digital music, photos, and videos), and devices (TiVo).

To bring the digital home to the Indispensable Phase as identified in Mr. Sculley’s presentation, device control must be made easy and consistent. The industry faces numerous challenges as it develops control solutions, including the following:

• The need to provide control of legacy devices that use IR while concurrently addressing new wireless solutions;
• The need to develop control tools with simple, intuitive setup requirements; and
• The need to increase control intelligence so that knowledge of system topology is not required of the user.

“Universal Remotes” have tried to address these issues, but to date, they haven’t made things easier, only more complicated. Standards, such as DHWG and UPnP, will ultimately help minimize this complexity. Over 670 companies support UPnP, which enables devices to be automatically discovered and configured. UPnP will show up in CE devices around 2004/2005. OpenPeak aims to complement this movement toward standardized, seamless control by providing solutions that connect legacy devices to new standards with a Wi-Fi-to-IR bridge, so older devices can work in the newer standards-based world. OpenPeak also aims to makes setup easy and non-technical, with transparent device-connection topology and portable control. Since the technology is wireless, users can take the remote anywhere desired and still control all of the digital media available.

Next Steps Digital

Tom Andrus, VP, EarthLink, Inc.
Tom Andrus addressed the consumer issues resulting from people having to manage and understand ever more digital “stuff.” The industry must take the reins in helping these customers deal with their digital stuff. Mr. Andrus used the story of “the Three Georges” as illustration:

George Carlin – who has a problem, he has all this “stuff”

• Like George, we have too much stuff, only now it is digital stuff.
• Yet we are analog humans and so we need that interface, like PCs, PDA, MP3 players, etc., to interact with this stuff.

Curious George – who tries lots of things and some work, some don’t

• Mr. Andrus noted that EarthLink has tried many different approaches to help people deal with their stuff, including VoIP and spam-blocking.
• Some work and some don’t but the point is that we don’t really know what works until we test it.
• Costs must also be driven down so people can afford solutions to complexity, whatever the best solutions turn out to be.

George Jetson – this George saw the vision in 1962, which was to take this technology and make it easy

• For example, how do you make eBay easy? EarthLink has integrated directly with eBay so everything is right in front of the user.
• EarthLink aims to take things that are great and integrate them and thus make them special for the user. The Company’s focus involves Utility, Protection, and Communications.

Dave Clark, Director, Product Strategy & Management, Home Entertainment Products, Scientific-Atlanta, Inc.

Dave Clark asserted that DVRs (digital video recorders) are here to stay and are no longer just for early adopters. Scientific-Atlanta has shipped 1.13 million DVRs since July 2002 (306,000 in the first quarter of 2004). Among users, acceptance and loyalty are very positive, even to the point of increasing the consumer’s perception of the MSO’s reputation. Among a study of 900 homes with DVRs, more than 60% don’t watch live TV anymore, while 67% use the DVR daily. Three-fourths rate the MSO service with DVR 8-10 (with 10 being the highest score), and 82% are very likely to continue the service − and 75% will tell their friends to get one.

As the market moves beyond early adopters, ease of use will be even more important. DVRs will evolve to provide multiroom distribution capability (and not necessarily just via coax), targeted ads, personal content, and DVD burning. In the future, ads will have to be more targeted, and content will have to be personalized. Consumers are in the early stages of understanding the power of DVD burning.  As this understanding increases, consumer viewing behaviors will continue to change. Traditional advertising must keep up as consumers change their behaviors.

Lou Lenzi, Vice President, Advanced Products and Business Development, Consumer Solutions, Thomson, Inc.

Lou Lenzi took the CONNECTIONS™ crowd on a review of current solutions based on the consumer’s need to navigate through lots of content. In the consumer’s mind, the notion “What’s On” is changing to “What Now,” recognizing choice and control in the connected home.

But current solutions are largely based on old approaches. For example, remote controls, even the programmable ones, are still IR based. The digital home needs new approaches; as possibilities and choices expand at an ever-accelerating pace, these approaches need to emerge quickly. Mr. Lenzi noted that when TV was introduced, it was positioned as a radio with an added picture element. Just as TV has evolved into something much more than its original seemingly prosaic and limited role, the industry today must also stay open to new ideas and different ways of approaching innovation and challenges for the digital home.

As an example, Thomson is trying new approaches in making navigation a little less tedious to the consumer. The Company is looking at approaches like Harmonic Clustering of content based on content attributes and SmartTrax graphical interfaces that present choices in colorful and playful new ways.

Bruce Sanquinetti, CEO & President, Bermai, Inc.

Given the consumer demand for wireless networking and AV applications, the industry must find a way to make wireless AV practical. Bruce Sanquinetti offered one possible solution with Bermai’s MIMO (Multiple Input, Multiple Output), which offers the necessary range and data rates to deliver these applications.

Video is particularly demanding of wireless, and Bermai’s MIMO is designed to address these needs. For example, the rate in one home went from 0 to 8 Mbps to 17 Mbps, with three-times greater coverage. This solution can be applied to multiple types of wireless (e.g., 802.11a and 802.11g). Regarding future standards, 802.11n aims at 216 Mbps raw (150 Mbps net), and this committee has just decided to use MIMO technology as its technological foundation.

CONNECTIONS™ 2004 – Day Two

Setting the Stage

Tricia Parks, President, Parks Associates

The migration to the digital home is well under way with the bedrock of that migration continuing to be the PC. Between 70%–73% of U.S. households have a PC, with between 65% and 68% of households having Internet access. The PC introduced access points beyond entertainment into the house and has encouraged more money to be spent on services. In the future, the consumer will want and use ever more services.

The industry must take steps to resolve issues of complexity, reliability, and privacy (where needed). Serving consumers at their homes will become more necessary than it is today as complexity increases among systems and networks.  The concept of “good service” is simple, but excellent execution demands a great deal of planning, training, and constancy. Charging the consumer money for this while retaining the sense of good value is tricky but will be necessary.

CONNECTIONS™ 2004 offers congratulations to all for where the industry has grown, reminders of the next needs and, solutions or, at the least, solid insight into possible solutions for the next market issues.

 

Delivering on the Digital Home Vision

Louis Burns, VP and Co-General Manager, Desktop Platforms Group, Intel

Louis Burns discussed the changes and opportunities that the digital home is creating as well as Intel’s current activities in this arena. The digital home has created what Mr. Burns terms an industry inflection point, which historically produces turbulence, change (with all the discomfort of that), and opportunities (with all their promise and reward. As an example, Mr. Burns recalled the early days of the Internet when eBay emerged, taking advantage of the change created by the Internet, and fulfilled a real (and in many ways heretofore unknown) need to connect people in new ways. In turn, PayPal (now owned by eBay) also became important, as payment services expanded based on new needs created by eBay and the Internet. Now, the Digital Home is producing another inflection point as a consequence of the migration of digital technology to the formerly all analog world, including the convergence of PCs, CE, and communications. As in the past, this inflection point will rewrite the rules of opportunity in consumer markets.

To understand the new needs as well as the fundamental changes in consumer expectations and behaviors created through the emergence of the digital home, Intel is “living” with real families to observe and test solutions and behaviors. The company takes the lessons learned from these experiences and applies them to new designs and standards work – and Mr. Burns offered videos as well as live testimonials of their efforts.

This ethnographic approach is necessary because this future will be defined by the consumer, not the technology. He referred to one such family in their trials as the “Brave Family” in Oregon. This family is progressive regarding technology adoption but has had a difficult time dealing with the many things they want to do – watching movies, listening to and making music, creating videos, taking and sharing photos, playing games, etc. Intel did a “Digital Home Makeover” of this family’s electronic equipment, incorporating wireless technologies, HDTVs, multiple PCs, media PCs and platforms, and smart phones – products all commercially available today. The family used the new products for many things, including the creation of a video that the boys gave to their girlfriends on prom night. The family also reported that the integration of such technology gave them more time together and made their home quite popular in the neighborhood. Intel is using all of these findings, including the technical issues encountered, such as interoperability, as input to further decisions regarding their product designs and standards.

Beyond improved communications and entertainment, the Digital Home can help the aging population and the handicapped. Given changing demographics and the graying of the population, serving this market could indeed be a much bigger task than serving in the entertainment sector.

Eric Dishman, Director, Intel’s “Proactive Health,” National Chair for the Center for Aging Services Technology took the stage here to explain efforts in this arena, noting:

• People 40-50 years old spend two to three times more money on health than on entertainment, and demographic studies show the population aging. While there are five workers in the U.S. to one retiree today, it will be 3 to 1 in 2025. The shift will be even more pronounced in Japan, where the ratio will be 2 to 1.This shift portends dramatic change and mandates implementation of technical solutions that can help reduce labor requirements and increase the promise of valuable – and even independent – living for these population segments.
• Intel is doing tests now and working with the Center for Aging Services Technology. One project underway is a trial with Alzheimer patients, where sensors, communications, and other elements of the Digital Home help these people stay in touch with family and remain independent for a longer time.

Burns took the stage one last time to emphasize, in the end, that the industry must work together to build the ecosystem required to develop the market. Standards, such as the DHWG, with over 120 member companies and its first guidelines coming out in the second quarter of 2004, should further this effort. Intel is also helping young companies develop in this area with its $200,000,000 Digital Home Fund.

Mr. Burns presentation offered a reminder as to the very human reasons that so many are committed to the potential of technology, foremost among those being the real opportunity to help tens of millions improve their daily lives in one way or another.

Reliability, Security and Interoperability

The next session addressed the collaborative arrangement between Wind River (VxWorks) and Red Hat (Linux) in developing embedded operating systems for devices. The two companies are trying to make Linux a viable choice that works with Wind River’s existing middleware and development environment.

Michel Genard, VP, Platform Marketing, Wind River, spoke first on the new challenges presenting themselves as a host of devices are connected. People on both sides, hardware and software, must become experts in lots of different technologies, and current conditions require that companies avoid wasting R&D on cancelled projects or ones that just miss the mark.

Linux can address these issues by offering an open-system alternative to designers. However, Linux has had low success because its uses have been fragmented. Therefore, Wind River is working with Red Hat to build a common “Device Software Optimization (DSO)” development environment on top of and consistent with both operating systems.

Ian Knight, Regional Director, Enterprise Group, Red Hat, continued the presentation by delving into the Linux market. Currently, Linux implementation for devices has too many players and is going in too many different directions. Red Hat is working on interoperability, standards, and binary compatibility – incorporating lessons learned from its previous work – in order to move this market while making Linux a key technological solution in this budding era of interconnected devices.

The Next Five Years for the Digital Home

Deepak Kamlani, President & CEO, Global Inventures

In the following plenary session, Deepak Kamlani introduced Global Inventures, a company consisting of 30 employees who incubate and help manage over a dozen standards bodies, many of which are involved in the Digital Home (e.g., HomePNA, WiMedia, ZigBee, UPnP, MoCA, and HomePlug). In citing Metcalfe’s Law, where the value or utility of a network is proportional to the square of the number of nodes, he placed the evolution of the digital home at a point equal to the digital office 20 years ago, where there are lots of devices and only the beginning of connectivity among these disparate nodes.

With the even-increasing push toward connectivity, Mr. Kamlani sees many complementary technology solutions in the mix – for example, wired and wireless solutions will coexist. And with more aggressive service providers trying things like the “triple play,” streaming, and multiroom video, the need for compatible standards will be even greater.

And this integration will only accelerate. Customers will want one-stop/one-call integration services, and channels will emerge for in-home equipment setup and support. Today, such a channel does not exist, but several big box retailers and some dealers are moving towards this, but it remains evolutionary at this time.

Marty Levine, VP of Strategic Planning, DigitalDeck

Marty Levine introduced DigitalDeck as a company that provides an EPG-like interface that treats TV channels, the Internet, and personal content as if they are all channels you can choose from, just as TV today lets you choose from multiple stations. This approach creates the “Home Wide Web” with content and services of all varieties. The new principles governing this budding market demand the following:

• Shared content anywhere in the home;
• The need for a common UI and a single remote; and
• The necessity for broadband Internet to deliver high-value content to TVs.

For the consumer landscape, these new principles mean that the location of both the content and device no longer matter. On-demand services will become more important than “live” participation, and as a service, broadband Internet will match the significance of cable, DBS, and OTA (Over The Air).

All these principles coalesce into the “Home Wide Web,” which features a combination of connectivity methods and communications based on standards to share content. This new Web model features more downloading to cached, not so much streaming, virtual channels that mimic the TV experience. The “Home Wide Web” requires progress on issues such as DRM, new storage solutions, more subscriber-based services, and more multimedia adaptors for legacy devices. To realize this vision, the industry will have to acknowledge multiple codecs, and network operators must extend their support into the home.

Simon Wegerif, General Manager, Consumer Businesses USA, Philips Semiconductors

Simon Wegerif presented Philips Semiconductors’ efforts to communicate the benefits of new technology to consumers, benefits that are often not immediately apparent to them.  This condition exists for the digital home.

He specified the recipe for value in a new product, service, or system in this context. It must be easy to use, provide a recognizable benefit, and operate within familiar use modes and behaviors.

Product adoption rates correlate to the above criteria, with DVDs and digital cameras providing specific examples. To generate such successful products, often single or limited functions can ease the learning and operational tasks. Interoperability is absolutely required. Of course, clear value must be obvious and demonstrable, but the first step is simply understanding familiar use cases that elucidate the issues from the consumer’s point of view.

Mr. Wegerif advocated such an approach for the digital home (or connected home). Today the concept is still confusing and thus does not meet his aforementioned criteria. The industry needs to establish the use cases previously specified, so companies can communicate benefits and meet consumers’ needs in terms that have real cognitive meaning to the target audience. The DHWG, as an organization, is defining these necessary use cases. In time, these types of efforts will ultimately connect the technologist and the consumer by communicating the latter’s needs and desires and matching them to valued benefits.

The Digital Home will evolve in small steps:

• New specialized devices will emerge, such as personal media players;
• Technology will eventually disappear into familiar objects which match familiar use models and even cognitive categories among consumers; and
• There will be a shift to central resources and distributed control, a concept that Philips calls “Ambient Intelligence.”

Mr. Wegerif explained examples of Philips technology in this area, one exampling being Near Field Communications (NFC). NFC is used to key authorized domains for digital rights management of protected content, the idea being that NFC enables easy viewing of protected content while ensuring the protection of that content regarding its creators and right holders.

CONCURRENT SESSIONS

Defining Key Requirements, Inhibitors and Accelerators

Track A – Digital Entertainment – Content To and Through the Home

For this panel, the visionary speaker, Jodie Hughes, President & CEO, Digital 5, Inc., extolled the need for what he termed a “Virtual Head End” — a product offering an evolutionary step away or beyond the current qualities of products hosting content in the home. Today, products are device oriented; point-to-point interconnected; and have too many codecs with no unifying framework. With broadband, streaming content, and PC usage driving the market towards anytime, anywhere, and on any device, the industry needs to develop devices that are more robust, multicodec capable, securable for copy protection, and connected. Further, devices must know network protocols, and there must be a formal ID system, all the necessary qualities for the “Virtual Head End.”

Digital 5 provides a platform addressing the needs stated above but acknowledges that since there will never be agreement to do things a single way, different devices and approaches must work together to realize the vision of the digital home. The market will decide which approaches flourish, while solutions must incorporate the key ingredients:

·        Standards across all included categories;

·        Multiple codecs through transcoding; and

·        A framework to handle multiple DRM methods.

The other panelists introduced themselves prior to the debate. They included:

Jordan Greenhall, CEO, DivXNetworks

He introduced DivX as an alternative codec to H.264 & WM9. It started in France and is positioned as a simpler alternative, particularly for small devices.

Eric Dewannian, WW Director of Business Development, Texas Instruments

Mr. Dewannian commented that multiple formats will exist, which requires a good transcoding engine, and TI is poised to handle these disparate formats, so to the consumer’s perspective, the content just plays.

Will Kreth, Director, Interactive Media, Time Warner Cable

Mr. Kreth acknowledged that customers do not want to be integrators. With that in mind, Time Warner Cable has had good success offering DVR to customers and is now introducing VoIP.

Bob Whitman, Market Development Mgr., Corning, Inc.

Mr. Whitman stated quite simply that DSL can’t meet the needs of video and FTTH (fiber to the home) is the answer to this challenge.

Jim Chase, Director of Strategic Marketing, Zoran Corp.

Mr. Chase emphasized scalability and value – in short taking the step to identify and design the right features so silicon components can reach scale economics – and usability – in short trying to create UI sanity by providing good reference designs that others will adopt.

Following the introduction, the moderator Kurt Scherf led the debate by posing a series of questions to the panelists:

How important is middleware?

Jodie Hughes (Digital 5) felt that middleware is not needed but that what is necessary is a framework that creates a distributed operating platform so that distributed heterogeneous applications can interoperate. In Mr. Hughes’ view, the cost of middleware makes it a no-go solution.

Jim Chase (Zoran) said that the industry can’t force middleware into every box but that middleware can fulfill a role necessary for some devices.

Eric Dewannian (Texas Instrument) stated that we need more middleware to hide the complexity – it has nothing to do with cost.

What media formats are most important and most likely to be adopted?

Jordan Greenhall (DivX) commented that there is a thick client vs. thin client issue – thin clients use fewer formats and the consumer has the power to pick solutions that demand fewer formats, but today it is not clear whether thin or thick clients will dominate the consumer landscape.

Jim Chase (Zoran) noted that this issue used to be simpler, but the advent of formats such as high definition makes for ever more challenges. CE formats change more slowly than PC formats.  The multiplicity of formats, slow change in formats, and different adoption practices in world regions combine to increase the complexity of this issue.

What role will compression technology have on format options?

Bob Whitman (Corning) felt that with enough bandwidth (in-home fiber solutions), compression will be unnecessary in the long run; however, compression is needed in the short term because bandwidth is not yet available.

Eric Dewannian (Texas Instruments) disagreed – he suggested studying Japan where high bandwidth is available, yet people always want more channels. His conclusion:  the future is H.264, the next version of MPEG-4.

Is there a winner platform for content storage?

Will Kreth (Time Warner Cable) chimed in that DVR will be deployed despite costs. He added that DRM issues and content provider restrictions have initially tripped up server-based DVR. However, these platforms will feature the ability to burn a DVD once the industry conceives a way to charge for it.

Jodie Hughes (Digital 5) added that storage will be in multiple devices.

Bob Whitman (Corning) commented that the media center will be the key holder of content.

Jim Chase (Zorzn) noted that personal content will drive the need for local storage on a server, but there will also be the need for home content management.

How important is the concept of a single user interface…or at least interfaces that have the same look and feel?

Jodie Hughes (Digital 5) said that different UI approaches for the same task are acceptable, adding that people already deal with this issue for e-mail, as long as the necessary devices can work together to deliver these services.

Jim Chase (Zoran) said that too much heterogeneity in UIs may inhibit market growth, noting that things are too difficult and complex for the consumer as it stands now and that the industry needs to inject some sanity into this area.

Track B: Home Networking & Residential Gateways – The “Triple Play” and Beyond: Visionary and Panel

Vince Izzo, Director of Consumer Business Development, Broadband Communications Sector, Motorola (VISIONARY SPEAKER)

Yuanzhe (Michael) Cai, Senior Analyst, Parks Associates (MODERATOR)

Sianne Mercer, Director of Business Development, Sandvine Incorporated

Anna Jen, Senior Director, Solutions Marketing Group, Maxtor Corporation

Jim Reeber, HomePlug Powerline Alliance

Richard Nesin, Vice President, Marketing, Coppergate Communication

Vivek Pathela, Senior Director of Product Management/Marketing, NETGEAR

General Themes

Slower than Expected

This panel started with the admission that the triple-play vision – voice, data, and video streaming over a “fat” broadband pipe – hasn’t happened as expected. Today’s home network is still data-centric. While broadband data has been a runaway success, with about 27 million U.S. subscribers and network performance improving steadily, cable MSOs and companies like Vonage are just starting to introduce competitive VoIP services, while telcos are just starting to offer VOD services. Even home monitoring and control, traditional categories of home systems, are just now extending their reach with remote access.

Content-Driven Emotional Responses Trump “New” Technology as Purchase Motivator

The panel did reach the consensus that content-driven emotional experiences are replacing technology drivers in motivating purchases. These new experiences are driving innovations and improvements in products; for example, demand in equal parts photo, data, and music management has produced mobile phones with built-in cameras, browsers, and music players. The parallels to triple-play services are obvious – service providers will discover a host of new possibilities for managing and protecting the content that is going to and stored in homes, cars, and portable devices.

Home Gateways Key to Service Providers

Home gateways will be the key as service providers push this new service philosophy. Gateways will make it easier to manage the content and offer more services. But as competition commoditizes individual services, a growing distinction between network and service providers will follow.

Compatibility Essential to Multiple Distribution Options

Consumers can buy gateways and home-networking equipment through a variety of channels, including retail stores, over the phone, through the Internet, with service subsidies, and finally through service providers, which both deliver and install the equipment. This panel drew a comparison between the home networking and plumbing. Regarding the latter, the homebuilder installs this infrastructure, and professional plumbers maintain it, while retailers such as Home Depot sell certain fixtures directly to the homeowners. Thus, the devices enabling these triple-play services must have some degree of sameness or at least consistency, so this triple-play vision will likely be easier to maintain through appliance devices rather than PCs because the hardware and software configurations of the former are known and more straightforward, while there is also less potential for viruses and worms.

Special Session: Enabling Digital Homes: Worldwide Standards

Patrick Griffis, Director, Worldwide Media Standards, Windows Client Division, Microsoft Corporation (VISIONARY SPEAKER)

John Barrett, Director of Research, Parks Associates (MODERATOR)

Thierry Devars, Project Officer, European Commission

Mark Francisco, Director of Home Services Engineering, Comcast Corporation

Ladd Wardani, Vice President, Entropic Communications; President, MoCA

Jason Ziller, Digital Home Ecosystem Manager, Intel Corporation

The panel, featuring a variety of panelists discussing international issues and standards as applicable to the digital home, discussed a variety of standards used in the digital home as well as standards needed for the future – which will ultimately go toward ensuring seamless interoperability already deemed necessary to success. Several issues remain as hurdles, and digital rights management standards, in particular, were viewed as crucial for the development of audio and video entertainment services, which Parks Associates’ data show as key in driving users’ imaginations and thus their desire to acquire. The panel also debated the standards process, specifically the merits of proprietary versus open solutions.

CONCURRENT SESSIONS

The Hot Topics: Effective Solutions for the Consumer

Track A: Digital Entertainment – DRM: How to Ensure that “Anti-Piracy” Does Not Become “Anti-Consumer”

Unclear laws, competing business models and needs, and an array of incompatible DRM schemes make digital content problematic for all concerned, including the consumer who, with no insidious intent, just wants to enjoy a tune. There was some hope that a recently introduced bill, H.R. 107, The Digital Media Consumers’ Rights Act, could help sort out some of the basics.

The visionary speaker Mohan Atreya, Senior Systems Engineer, RSA Security, defined DRM as a method of persistent protection and rights management of content. The biggest issue in this domain is legal – “Fair Use” is defined by the courts, not by unambiguous law, leaving the lingering issue “What is Reasonable Personal Use?” Issues that are still in the mix, with some still unresolved, include:

·        Time shifting, which is acceptable as defined by case law;

·        Space shifting for multiple devices, which is a grey area with no clear law; and

·        Private copies, which again has no clear law.

One guideline that hovers over this debate is the “First Sale” Doctrine, which specifies the right to dispose of copyright work after purchase. This doctrine worked well for analog content but is problematic for digital content due to the potential loss of control for content. For example, if a father transfers music for his son from one iPod to another, is this legal? Does this use qualify as legal under the “First Sale” Doctrine? Again, the law specific to this case is unclear at best.

The industry cannot become too restrictive now, though. For one, take rates increase with copy privileges. So, while it may seem counterintuitive, sales increase when consumers can create copies of content. Secondly, and perhaps less open for debate, Apple has already set a standard of sorts, and anyone who is more restrictive than Apple has been via its iTunes service regarding file-copy privileges risks outright rejection from the consumer who purchases single downloads. So the industry must establish a standard or at least a precedent for rights portability, answering specifically “How does the consumer move content between different systems?”

Mr. Atreya offered a few specifications: 

·        First, they must all be trusted devices; that is, they must incorporate DRM solutions;

·        Secondly, the user’s ID must be bound to the devices; and

·        Thirdly, the purchase must be bound to the user’s ID.

Also, the Open Mobile Alliance (OMA), which started with phones, may provide the answer to this increasing dilemma; however, there are too many cooks in this DRM stew. The U.S. must establish some case law and uniform DRM standards – and then the market will open up.

As the other panelists introduced themselves, they also cited issues specific to this arena.

Jeff Joseph, Vice President, Communications and Strategic Relationships, Consumer Electronics Association

Mr. Joseph cited the HR107 Digital Consumer Rights Act, which among other things, requires CDs that use copy protection to declare so. He felt that this act has defined “Fair Use” better and ultimately will help consumers time and place shift lawfully with their content. The bill, introduced by Rep. Rick Boucher, D-VA, and John Doolittle, R-CA, would repeal provisions of the 1998 Digital Millennium Copyright Act (DMCA) that critics argue are unduly restrictive on the ways in which consumers use and enjoy digital content. Mr. Joseph has hope that ultimately these legislative efforts will provide consumers with more clarity when it comes to content protection.

Brad Auerbach, Executive Director, DVD Audio Council

Mr. Auerbach stated that DVD Audio will be the next winner for future audio formats and that SACD (backed by Sony) will lose. Furthermore, Mr. Auerbach stated that watermarking and modular copy protection keys will be incorporated for these new formats.

Don Leake, Program Director, Copy Protection Business Development, IBM Research

Mr. Leake explained that IBM is involved in broadcast encryption, key management, and system technologies, with some IBM ICs in use in consumer devices and some IBM systems in use for content management.

Brian Tucker, Digital Home Content Manager, Intel

Mr. Tucker declared that Intel has been involved for many years and has a long-term interest in developing this industry, as it ultimately constructs the building blocks that the industry will use.

Jim Taylor, Chief, DVD Technology, General Mgr., Advanced Technology Group, Sonic Solutions

Mr. Taylor cautioned that DRM can sometimes betray consumers. For example, a consumer may use Microsoft WM9 for personal content, and then its DRM solution locks that content to the WM9 platform, thus inhibiting consumer choice and flexibility. In essence, he felt that there are too many different and incompatible DRM schemes on the market, which can damage the consumer relationship and ultimately hurt this industry.

This panel also featured a “new” taxonomy for consumers regarding their content interaction. These classifications are necessary because they equate to different end-user experiences, which will call on different content protection requirements.

·     “Content Luddites” – users who occasionally rent a video or listen to their CDs, a group for which content protection must be transparent;

·     “Content Enthusiasts” – users who want to use time shifting and record their own content, a group for whom content protection must not stand in the way of their creativity

·     “Content Pirates” – users whose content must be robust and who want freedom of copying and shifting.

In the abbreviated debate for this panel, the panelists discussed the issue of who will pick the winner, the “winner” being the ultimate solution for this DRM issue. Brian Tucker (Intel) felt that the DHWG needs to pick up on the DRM issue. As he stated in his visionary address, Mr. Atreya felt that the OMA could grab the mantle on this issue. Mr. Leake (IBM) cited DVB as the standards body in Europe with the most momentum – and they’ve turned their attention to DRM. He felt the OMA is too phone-centric. Finally, Mr. Auerbach (DVD Audio Council) noted that content owners are the ones that need content protection, so ultimately they are the ones who should and likely will decide the ultimate solution to this now quite formidable – but by no mean unassailable – DRM issue.

Track B: Home Networking & Residential Gateways – Debating the Future of WLANs

Colin Macnab, Vice President of Marketing and Business Development, Atheros Communications

Matt McRae, Director of Broadband, Linksys

Rick Rotondo, Vice President of Technical Marketing, MeshNetworks

Carl Temme, Director of Marketing, Airgo Networks

Jung Yee, CTO, IceFyre

Stuart Sikes, Vice President, Sales, Parks Associates (MODERATOR)

Following an introduction by the moderator Stuart Sikes, this panel launched into the issues:

 “Is Wi-Fi ready for streaming video?”

Matt McRae (Linksys) offered a qualified “Yes, but,” cautioning that quality is variable, thus not good enough for broadcast quality, and the range is insufficient.

Jung Yee (IceFyre) added that Wi-Fi chipsets were not designed for video/audio content, although new chipsets are coming that are designed specifically for these applications and will thus be capable of handling such rich media content.

Carl Temme (Airgo) affirmed that when Wi-Fi uses enhanced protocols, video distribution can and, in fact, is being accomplished. The market needs test environments to compare technological approaches in order to determine what will work best in this domain.

Other issues followed, including overlap. Colin Macnab (Atheros) stressed the need to move to the 5 GHz frequency band in order to add more channels and also so companies can design systems for spectral efficiency. Rick Rotondo (MeshNetworks) said that there is an entirely different technological approach – one that relies on passing information from node to node rather than using brute strength to address the problem. His company’s technology, developed by DARPA for military applications, can provide a reliable wireless communications environment in the home or throughout a community.

Despite the pressing need for standards on the industry side, the panel was unanimous that consumers in the end do not care about standards – at least not on specific standards. They do care about the results of standards adoption, namely interoperability. The panelists agreed that consumer electronic manufacturers must implement wireless capabilities in a uniform manner based on industry standards. However, Mr. McRae commented that he for one does not see these necessary steps happening as rapidly as desired or needed by the market, with products coming to market often as stopgap solutions. Others on the panel also commented that the challenge for the industry is to coordinate development so that products are interoperable at a reasonable cost.

Further, panelists also predicted that hybrid networks will prevail, with Mr. Temme further commenting that people want wireless. But wireless does have limitations, so HomePlug, HomePNA, and Ethernet will all have roles in a digital home, where there will be a mix of wireless and wired networks.

Regarding other wireless technologies, such as ultra-wideband, this panel felt that there are not enough products out in the market to build the momentum to fight Wi-Fi, which despite its shortcomings has today’s market momentum.

Track C: Portability and Mobility – Content and Applications "On-the-Go"

Yoram Solomon, General Manager, Consumer Electronics Connectivity Solutions, Texas Instruments (VISIONARY SPEAKER)

Gregory S. Gower, Senior Director of Sales and Marketing, WAVECOM, INC.

Jim Meyer, Vice President, Business Development, Alereon; Chair, WiMedia Alliance Marketing Working Group

Melissa Simpler, Vice President, Sales & Marketing, Affinegy LLC

John Barrett, Director of Research, Parks Associates & Patrick Houston, Editor-in-Chief, CNET.com, CNET Networks Inc. (MODERATORS)

This panel tackled the pros and cons of Wi-Fi, 3G, Bluetooth, UWB, and other wireless technologies. The panel deliberated on the difficulties of ensuring quality of service with home networks that are not owned or maintained by the service providers themselves but rather consumers. This issue ultimately points to the need for a network provider of sorts – and highlights the difficulty in achieving the vision of the digital home solely through the retail channel. The service issues that arise can strain that consumer relationship with manufacturers.  If consumers see technology as failing to deliver on its promise of on-demand high-quality content, this will undermine the vision of the digital home now emerging and slow its adoption.  After all, these are not “must have” benefits today in the minds of most consumers.

Reaching Consumers: The Marketing of Digital Convergence

Tony Weiss, President and COO of Stores, CompUSA

Upon taking the stage, Mr. Weiss offered to the CONNECIONS™ audience the comment that CompUSA has a changed strategy. Yesterday, CompUSA aimed at being the consumers’ location for technology solutions; today, CompUSA is aiming to sell lifestyles. This turn of phrase, which creates a new cognitive category for the digital-home space, is necessary because consumers no longer want to buy technology for productivity and features. In fact, consumers actually fear technology. And the industry banter about being in “exciting times” for technology may be irritating the problem. It is certainly not a good thing – it promulgates technology solutions to problems the consumer does not have. In short, he felt that we have scared consumers with technology. They fear making the wrong decision, looking stupid, and becoming overwhelmed; they don’t know what questions to ask. So, when asked, “Do you want to connect your TV to the network?” almost 100% say “No.”

Given this mindset, how do you persuade consumers to buy? In short, don’t sell technology or features. Technology is not about productivity anymore; it is about “fun.” CompUSA’s solution is to sell lifestyles. “How will this improve my life? How will it fit into my lifestyle?” For example, don’t sell a five-megapixel camera, sell great pictures. In adopting this strategy, CompUSA is positioning itself along with Tweeters as a midlevel outlet, below CEDIA and above Wal-Mart, meeting consumers on the level they desire so they can make decisions about technology-based innovations that will improve and enhance their lives.

CONCURRENT SESSIONS

Focus on the Future: Trends and Technologies that Matter

Track A: Digital Entertainment – Connected Entertainment as an Out-of-the-box Solution

In his visionary address, Brian Sugar, VP Marketing, 2Wire, Inc., set the stage for the market – noting that 1.3 million portals have been deployed and that the market for advanced STBs, defined as having internal available storage, is now exploding. Further, the demand for “thin-client” boxes, which are used to connect second and third TV sets in a connected home, is growing. He predicted that the network provider will be the one that sells these devices. For this market move to be successful, and for the consumer to be satisfied, these systems have to achieve a high level of service integration, and that mark is not easy (if even possible) to achieve for someone shopping for boxes at Best Buy.

On the service front, the options allowed through triple play will make these propositions successful. And he used to think that cable had the advantage because it owned that all-important TV slice, but with new and changing opportunities for partnership, now DSL has the advantage because it can partner with satellite service providers while delivering better services for the Internet and voice, including cellular/VoIP integration. In the long term, FTTH and ADSL 2+ are other valued service that will be added to this mix.

The panelists introduced themselves with a brief description of their companies.

David Fealkoff, Director, Sigma Design

Sigma Design makes system-on-a-chip media processors used in media adaptors.

Ken Fuhrman, CEO, Interact-TV

Interact-TV provides a solution to store content for the TV from multiple sources and also includes content management and content backup features.

Reed Hinkel, CEO, Oregan Networks

Oregan Networks makes middleware for digital entertainment devices, with its biggest “win” being the Sony PlayStation.

Jeff Timbs, Director, New Business Development, Agere Systems

Agere Systems produces QoS communications silicon.

Brett Gaines, Sr. Director of Business Development, Silicon Image, Inc.; President, HDMI Licensing, LLC

Silicon Image makes DVI, HDMI, and ATA storage semiconductors. Mr. Gaines is also president of licensing for HDMI.

The panelists then launched into the debate with the following issues:

How much cost can the storage device bear in order to enable these functions before consumers balk or before the market is delayed?

Jeff Timbs (Agere) is confident that if one combines many functions into one box, the costs can go down for the overall solution.

Further, Brett Gaines (Silicon Image) noted that once solutions are integrated into silicon using off-shore houses, a company can drive down its costs.

Reed Hinkel (Oregan Networks) believes that greater standardization adoption based on guidelines suggested by DHWG will help reduce costs.

Mr. Sugar noted that 2Wire’s boxes are $250 (or $5-$10 per month), but the consumer has to go through a service provider for acquisition, setup, and support because of the difficulty/complexity involved.

Michael Stroud, a co-moderator from Wired.com, reminded the panel that despite all of these visions, a one-box solution has not happened for 10 years. Also, despite these downward cost projections, ultimately the consumer will not bear out-of-the-box difficulties, which could further complicate these cost-savings solutions. Finally, he added the comment that from the consumer’s perspective, technology is complex and can generate confusion, stress, and disorder.

·        To the issue of added costs created by all these licensed media formats, Ken Fuhrman (Interact-TV) felt that a possible solution is to download codecs and DRMs only as the markets evolve or as certain formats/solutions are needed.

To the straightforward question of which format will win:

·        Mr. Sugar (2Wire) asserted that service providers will define which formats will win. He compared TiVo vs. EchoStar regarding DVR deployment to further his point – the service provider wins. The providers are bundling services with devices, with prices at $225-$425 (depending on storage) and $4.95-$19.95 per month (depending upon services and storage).

·        Mr. Fuhrman (Interact-TV) believes that MPEG2 is the format of the present, with DivX and H.264 as future winners, whereas

·         Brett Gaines (Silicon Image) said that HDCP and HDMI are the comfortable winners.

To the final question of “Where are you today, and where will you be in 6 months?” the answers were as follows:

• 2Wire is currently in trials for advanced media portals and plans to roll out in six months.
• In six months, Sigma Design will have OCAP support, with 10-20 new products.
• HDMI has 100+ licensees, and 100 relevant products were shown at CES. It also has an FCC mandate.
• For Interact-TV, the MC1200 ($699-899) is selling in the hundreds per month, with about 2,000 units sold total. The company is selling through direct channels because selling through service providers is too constraining.
• Oregan’s solutions are on 20 devices now and going to 40. They have a high and growing number of licenses, mostly due to the Sony PS2, and they will support networked DVDs and STBs.
• Agere’s product will introduce within the next 12 months (by May 2005).

Track B: Home Networking & Residential Gateways, Delivering Enhanced Value to Connectivity

Steve Bush, Co-founder and Vice President of Products Pure Networks

Kevin Donahue, Senior Manager, Business Development, Akimbo

Udi Yuhjtman, Vice President of Operations and Business Development, Jungo Software Technologies, Inc.

John Barrett, Director of Research, Parks Associates (MODERATOR)

This panel discussed “best practice” approaches to improving the home user’s experience with connectivity, noting that with a footprint of more than ten million connected households, the challenge for solutions and service providers is to increase the value and usability of data and voice networks in the home.

Panelists focused on improving installation, configuration, reliability, and upgradeability of such products and systems because addressing these issues contributes to improved value. This list can produce difficulties, though – for one, it is difficult to upgrade software on CE devices. The panelists further explored the issue of whether the gateway will be a CE-like appliance or based more on PC architectures. Participants noted that the multipurpose PC has proven itself to be less reliable than single-purpose CE devices. Panelists attributed this shortcoming to the PC’s flexibility, a double-edged sword apparently, because this oft-praised trait also allows consumers to install new hardware and software applications that can impair functionality and even allow viruses, worms, and spyware.

Panelists placed home networking needs on a Maslow’s hierarchy with reliable transmission at the lowest level of needs but without which, more advanced needs are a moot point. Service providers often start with basic connectivity, parental control, virus protection, and spam control as basic offerings, then expending resources to add music streaming, photo processing and sharing, VoIP and VOD, and even electronic communities. At the top of the hierarchy is a vast selection of music, video, and games.

At this point, an audience member noted that access and availability of new high-value applications would likely vary by provider (as well as access to resources), so providers with large economies of scale will have an advantage. For example, as companies like Net2Phone and Vonage build the business case for VoIP and ultimately make it a viable market play, the larger incumbents like AT&T and Time Warner will enter the market and compete.

Further, disparate service offerings across regions have implications in regional markets, so consumers throughout the U.S. will have different service experiences and thus different notions of digital content services and even what services and products constitute the digital home.

Track C: Portability and Mobility – Content On-the-Go: The Role of Wireless Delivery Systems

Patrick Leary, Assistant Vice President of Marketing, Alvarion (VISIONARY SPEAKER)

Leif Ericson, Business Development Manager, Southern Telecom

Vince Izzo, Director of Consumer Business Development, Broadband Communications Sector, Motorola

Sai Subramanian, Vice President, Product Management & Strategic Marketing, NAVINI Networks Inc.