DVD Industry Insider Report - The Challenge of Home Entertainment Networks

Would you believe it? A fantastic 12% of the American households are networked and that is going to drive home entertainment networks.

Or, if you look at the numbers another way, 88% of the American homes don't have networks. Add the fact that 35-45% of the U.S. homes (depending on whose numbers you believe) don't even have a computer so the "surge" shrinks a little more.

The big problem is "ordinary" people don't want a PC in their family or living room. When was the last time you sat on the couch to surf the web, do your emails, edit your photos or videos and produce audio CDs? How about never??

The concept looks fantastic. Who wouldn't want all of their content - music, photos, videos and movies streaming to every room in the house or play video games with others in the house or across the country? Naturally your living or family room entertainment center, like your stereo or TV, would never have to be rebooted would it? This great device has to be easy-to-use and easy to connect with all of those other devices.

Ironically, the store for the common man (and women), Wal-Mart, has plans to tap into this pent-up demand, non-computer market with $300 PCs. But if these homes are going to be computerized it will probably happen because of Steve Job's Mini brick and the copycat units you'll see over the next few months as well as Sony's PS system.

These units could be just what the market needs to push more people to buy something for their living/family room that does more than just word processing, email or Internet surfing.

Will CE Users Use Windows?

It certainly won't be Windows or long in the horn Longhorn based product. People who want their content anywhere can't be expected to leave their equipment on all the time as Microsoft recommends. They don't want to wrestle with all of the set up "fun." Rebooting? Yeah right!

Wired networks are the most reliable but they are a pain to set up which is why most of the home networks involve connecting PCs so you can share the internet connection and peripherals.

Only the brave souls choose one of D-I-Y home networking kits to string wires along the baseboard and thru the walls to connect the systems and peripherals. If they are dedicated and creative, they are even moving up to sharing their audio, video and photo content around the house.

But home networked entertainment won't happen until we come to grips with camouflaging the PC so it is simply a source for storing and accessing the household's MP3 collection, videos, photo albums and satellite music. The second - and vital ingredient - is to solidify the wireless networking specs so universal plug-and-play becomes more than just a great PR spin.

Wireless Progresses

Intel, Cisco and the Digital Living Network Association (DLNA) are really pushing the home wireless agenda. Wireless UPnP is proceeding in committee fashion but it is going to take time to get the products CE simple. As long as techies set the ground rules you're going to have to be a geek (we mean this in a nice way) to do this stuff. A few firms like ADS Tech are implementing the UPnP idea across their product lines. ADS has its ME squared (media entertainment evolution) program that says that any product carrying the logo will work other ME squared UPnP products.

Jon Peddie, president of Jon Peddie Research, notes that the PC industry is doing everything in its power to move systems into more homes and hopefully more living and family rooms. He points out that all of today's systems - even the least expensive is 3D-powered. In addition to "Free-D," he has also been taking a cursory view of the budget PC arena.

To illustrate the price deterioration of DVD burners, he notes that increasingly the new entry-level PCs (sub-$600) are sold with CDR/RW drives but upgrades to DVD burners cost less than $50 and in some instances are free. While it is great news for the consumer, Hitachi-LG Data Storage, the market leader, is making it extremely tough for BenQ, Lite-On Asusek, NEC and Pioneer. With prices below the low water mark, it is easy to see why industry analysts forecast large numbers of DVD burners being sold over the next few years (figure 3).

Blue Dominance?

You might say that HD and BD (Blu-ray) DVD will begin replacing today's DVD burners but according to IDC, even in 2008 when these higher capacity units are supposed to hit their stride their percentage of total sales will be only slightly more than 1%.

The same price deterioration is taking place with DVD recorders. In this area the new Toshiba Samsung Storage Technology (TSST) company makes its own pickup heads and chipsets. They are taking maximum advantage of this internal capability by making life extremely difficult for Panasonic, Philips, Sony, Pioneer and other CE players.

The HD and BD teams are warming up in the locker room determined to have their royalty based 20-30GB storage technologies replace today's cheap DVDR-based units (4.7GB single layer, 8.5GB double layer). Both are scheduled to hit the playing field at the same time - mid year. Both say it is obvious that people will step up to the higher priced burners/recorders/media because the higher capacity will be needed "when" High Def TV and video enters the market…soon.

Holographic Versatile Disc (HVD)

But almost before the first play of the game, another acronym announces it is entering the fray. Holographic Versatile Disc (HVD) has already been approved by ECMA and JEITA and the first version of the media will hold 200GB and a technology path that has already been proven to be capable of 1TB (1,000GB or 200 standard DVDs).

Present plans call for burners and media to be introduced by multiple manufacturers in the third quarter of 2005, just in time for the holiday buying season. If the past and present is any indication of the prices, you can be certain the producers will be "competitive" with Blue technologies when they hit the field.

The come-out-of-nowhere kids know they have yardage to make up if they are to win the marketshare game over the long haul. The only way most of these firms know how to do this is by what Larry Lueck of Magnetic Media Information Services (MMIS) calls achieving "profitless commodity" status as quickly as possible.

The one thing we all know for certain is that no matter how much "extra" storage capacity you give to someone, they will fill it. HVD might be the home media server storage technology of choice next year for all of your photos, music, videos and time-shift TV programs. That or a nice little DVD library that costs a few hundred dollars and holds 200 very inexpensive DVDR discs you can randomly search.

Interesting options. But next we'll look at the DRM issue which will really determine how quickly the world safely (without being sued) implements all or any of this...