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2006 January/February Issue
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The Digital Den
The Inside Story of the Hottest Home Convergence Trends
With high gas prices, the economy rife with uncertainty from terrorist threats and natural disasters that are assaulting the human psyche at every turn, it’s easy to understand why people might want to retreat to the relative safety of their homes. This tendency—known as “cocooning”—tends to come and go as perceptions change. But one thing is certain: More people sequestered in their homes means more consumers who need something to occupy their time.
And often that is good news for the consumer electronics industry—especially when it intersects with a sea change of digital convergence in the living room. Is it a perfect storm quite yet? No one is entirely sure, but consumers’ continued hunger for flat-screen HDTV sets, elaborate home-theater systems and more home integration with computers and portable devices suggests that changes are afoot.
For CE manufacturers and retailers, the only question is how to capitalize on the trend—especially as it evolves in unpredictable ways. “We think convergence is a huge opportunity,” says Randall Baumberger, president of Thornton, Colo.-based retailer Ultimate Electronics that has 32 stores in nine states. “We know there’s a need there, but we’re still waiting for the right mix so we can explain it to customers.”
 Indeed, it’s unclear whether consumers are ready for the convergence onslaught even as new “media center” PCs promise to integrate devices via a simple home network. “Most people want a big TV,” says Joel Avendano, an information technology consultant at San Diego State University. “I haven’t seen a lot of people migrate over to the media center yet. But I know the manufacturers want that to happen.”
In April, Hewlett-Packard introduced its HP z555 and z557 high-definition digital entertainment center series, a living-room device that can pause, play and record HD content and also record two standard-definition TV shows simultaneously. The z557 model has two 300-gigabyte hard drives for serious storage capability. Microchip powerhouse Intel, meanwhile, has created a new chip—dubbed “Viiv” (rhymes with “five”)—specifically designed for media-center PCs.
But Bill Leszinske, director of digital home marketing for Intel, says it’s unclear whether PCs will become the center of the digital entertainment universe. “The PC will play a key role in the home,” he says. “But we would come across as arrogant if we said it was only the PC. I wouldn’t say it’s the center of the digital home, but it will play a role.”
In October, Microsoft released the latest update to its Windows XP Media Center Edition 2005 operating system, which seeks to enable PCs and laptops to become digital home entertainment hubs without all the set-up hassles. In one interesting twist, Microsoft’s new version allows a Media Center-equipped PC to stream content (even HD) to any TV in the home via Microsoft’s new Xbox 360 gaming system, which just hit stores over the holidays. Already, Microsoft has struck deals with Viacom-owned cable networks MTV, VH1 and Comedy Central to provide content and is working with Akimbo’s Internet video-on-demand service to create a cable TV-like service through the “Online Spotlight” feature of its Media Center interface. Microsoft has sold some four million Media Center PC licenses to date and reports that more than 130 manufacturers now offer Media Center PCs around the world.
Gaming as a Gateway?
Microsoft’s integration of the Xbox 360 into its Media Center interface was no accident. The launch of the Xbox 360, as well as Sony’s launch of the PlayStation 3 (due out in early 2006), could allow video-game consoles to slip through the back door and into the digital living room (Nintendo, whose current GameCube came out in 2001, hasn’t said whether it will release a next-generation console in the near future).
In fact, convergence already is happening in the gaming space. Current gaming consoles already double as CD and DVD players, with the Xbox 360 and PlayStation 3 even supporting new high-definition “blue-laser” DVD formats. But both Microsoft and Sony also have added large amounts of memory, storage, high-end video processing and other multimedia features. “[Set-top boxes] and game consoles are both moving to a common ground with features such as hard drives and HD content delivery,” says Jamil Moledina, conference director for the Game Developers Conference and Game Developers Conference Europe. “For now, I see a cordial detente between [set-top boxes] and consoles, but as TiVo and Nintendo are acutely aware, times change.”
“The all-in-one media entertainment console is the Holy Grail of the consumer electronics industry. Everyone from Apple, Sony, Microsoft and the console game companies have made forays into this area. But thus far no one has developed a box with true crossover appeal.”
Moledina says speed to market and functionality likely will win the day. “The first device that can truly serve all digital entertainment needs and wants will probably be very hard to dislodge from consumers’ living rooms,” he says. Says Milan Petrovich, academic director of The Art Institute of Las Vegas’ Game Art & Design: “The all-in-one media entertainment console is the Holy Grail of the consumer electronics industry. Everyone from Apple, Sony, Microsoft and the console game companies have made forays into this area. But thus far no one has developed a box with true crossover appeal.”
As game play reaches cinematic levels, the video-game industry knows it must expand its base to grow. “Graphics technology is ‘topping out,’ so there is a need to show other kinds of improvements in game consoles,” says Jesse Schell, chair emeritus for the International Game Developers Association. “Integrating music, TV and Internet are part of this.” But while Schell says it could be a while before gaming systems are viewed as all-in-one hubs, Baumberger says that “there’s a better opportunity for gaming systems to be that hub than a computer.”
Baumberger also says that increasingly sophisticated games have helped drive sales of TVs and speakers. “I have high hopes for this next-generation of consoles,” he says. “Gaming only accelerates people’s need for this technology.”
Gene Ornstead, director of TV products at LCD panel maker Viewsonic, says that next-generation gaming devices are “going to HD pretty quickly” and helping to drive flat-screen HDTV sales in the process. “LCD technology is exploding,” he says, noting that prices continue to plummet. “The lower we drive the price points, the faster the adoption will be.”
The Networked Home: Are We There Yet?
To say consumers are confused about all of this is an understatement. And it’s no wonder. Just a few short years ago, creating a digital living room basically involved setting up a simple home theater. But the explosion of digital media has made interoperability and home networking an almost unavoidable factor. Home automation vendors, meanwhile, are trying to broaden the appeal of their traditionally niche industry by piggybacking on the mass-market digital TV craze.
“There’s an almost insatiable demand for digital TV out there,” says Glen Mella, chief marketing officer for Salt Lake City-based Control4. “The adoption of digital television today is the single biggest catalyst.”
As consumers warm up to the digital living room, they are likely to demand more mobility.
Control4 can integrate home theater equipment with lighting, temperature and security. “We’re really in the business of marketing lifestyle to people,” Mella says. “When you’re about to watch a movie, how cool would it be to dim the lights and set the temperature?” The answer probably depends on the household, but Mella isn’t the only one dreaming of digital Nirvana.
Art Noparstak, marketing manager for the home protection and control devices division at Intermatic, says a home control device “could even turn on your popcorn maker.”
It’s unclear to what degree the mass market will share these home automation visions, but one thing seems certain: The space may remain confusing for the foreseeable future. Two wireless control standards—one known as Zigbee, the other as Z-Wave—currently are jostling for dominance and lining up backers among device makers. Several companies also offer proprietary control technology. Meanwhile, other camps want to integrate control functions into broadband wireless infrastructures such as Wi-Fi that could work well for consumers trying to integrate “media center” PCs and servers into their home entertainment environment.
The Portable Future
Such integration increasingly includes portable devices such as MP3 players, which already can store entire music collections. Apple has been especially aggressive in working with vendors to extend its MP3-player dominance beyond the PC environment and into the digital living room. In August, for example, Riverside, Calif.-based SpeakerCraft introduced its Music on Demand Experience (MODE) product, a full-color, wall-mounted screen interface that allows users to access and control an iPod in up to six rooms.
“It allows people to share music within the home,” says SpeakerCraft President Jeremy Burkhardt. “There has been a terrific response. It’s one of the hottest products we’ve ever released.”
Says Eric Johnson, vice president of technology at Harrison, N.Y.-based Universal Remote Control: “The iPod is the single most requested item that people want to put in their home theaters these days.”
As consumers warm up to the digital living room, they are likely to demand more mobility. At Motorola, for example, executives “see the entire ‘connected home’ then serving all this content to mobile devices outside of the home,” says Nick Chakalos, senior director of whole-home media software at Motorola Connected Home Solutions. “In short, consumers will have seamless access to their personal entertainment or information from anywhere—inside or outside of their home.”
Companies continue to add such functionality to products. In September, Marblehead, Mass.-based HomeLogic released OneHome Theater, which allows users to access control functions not only from a wall-mounted screen but also from any Pocket PC portable device.
The interest in music player integration also suggests that consumers remain focused on the audio experience despite all the attention garnered by video technologies such as HDTV flat-screens. “If you’re trying to cocoon, that’s not going to cut it,” says Jack Buser, director of consumer electronics business at Dolby Laboratories, which already is promoting its Dolby TrueHD product to create a high-definition sound experience to go along with those stellar pictures. “It’s now very economical to build a great system in the home,” he says. “It’s within the realm of the everyman now. This is something that everyone can afford.”
That may be good news for consumers as they each retreat to their own digital entertainment refuge. And as screens get bigger, sound gets better and integration becomes more the norm than the exception, one thing seems clear: The digital living room just got a whole lot more interesting. For CE manufacturers, it might all just come down to execution. V
By Michael Grebb
Photography By Debi Fox
January/February 2006
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